Earnings-Based Loan Eligibility

New Department of Education Rule Ties Federal Student Loans to Graduate Earnings

A Department of Education rule scheduled to take effect July 1, 2027, will make federal Direct Loan eligibility for programs depend on whether graduates earn more than comparable adults with only a high school diploma—or, for graduate programs, a bachelor’s degree. The department will use tax data on earnings four years after completion; programs that fail in two of three consecutive years would lose loan eligibility for at least two years, and colleges could face broader aid consequences if low-earning programs make up a large share of their students or federal aid. The department estimates that 93% of tested cosmetology certificate programs will fail, while other estimates suggest about 3% of programs at public and nonprofit institutions and roughly one-third at for-profit colleges could fail, potentially affecting 4.2% of federal-loan recipients. Some programs in heavily tipped occupations receive a delay. The rule does not ban majors or dictate curricula; supporters say it protects students and taxpayers from financing programs with poor financial outcomes, while critics warn earnings-based measures could disadvantage socially valuable fields such as social work, teaching, the arts and religious studies.

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