New College Earnings Test to Hit Few Programmes

The US Department of Education's new college earnings test will have a limited but concentrated impact on higher education, according to fresh analysis from American University's Postsecondary Education and Economics Research Center. Only about 2.5 per cent of the 19.9 million students receiving federal financial aid — roughly 488,900 students — are enrolled in programmes expected to fail the test.

The earnings test, which took effect on July 1, measures whether graduates of career-oriented programmes earn enough to justify their student debt. Programmes that repeatedly fail the metric could eventually lose access to federal financial aid, with penalties possible from 2028 at the earliest. The research, reported by Inside Higher Ed on October 15, is the first detailed estimate of the policy's reach — and gives the college accountability debate its first hard numbers.

College earnings test targets a narrow slice of programmes

The finding that the college earnings test would touch just 2.5 per cent of aid recipients may surprise critics who warned of sweeping disruption — and supporters who hoped for a broad crackdown on low-value programmes. In practice, most degree programmes at public and nonprofit institutions clear the earnings bar comfortably, leaving the failures concentrated in a smaller set of offerings.

That concentration is the policy's real story. The 488,900 students in programmes expected to fail are not spread evenly across higher education; they cluster in specific sectors and programme types where graduate earnings lag behind debt levels. For those students, the stakes are significant: if their programmes lose federal aid eligibility, they could lose access to the loans and grants that make attendance possible.

Researchers caution that the estimates rest on modelling assumptions about graduate earnings and debt, and that actual outcomes will depend on how the department finalises its graduate earnings data and appeals processes. Programmes on the borderline may improve their metrics by adjusting tuition, strengthening career services or steering students toward higher-earning fields.

How the college earnings test measures federal financial aid

Under the college earnings test framework, the department compares graduate earnings data for a programme's graduates against the earnings of typical high school graduates in the same state, alongside debt-to-earnings measures. Programmes that fall short on both counts risk being cut off from federal student aid — the lifeblood of most career colleges.

The policy revives the logic of earlier gainful employment rules, which the department has repeatedly rewritten across administrations, with each version of the gainful employment rules attempting the same balancing act. Each version has sought to answer the same question: when should taxpayers stop financing programmes whose graduates cannot earn enough to repay their loans?

Colleges brace as the college earnings test nears

For the institutions whose programmes are at risk, the years before 2028 — the earliest penalties could apply — offer a window to act. Colleges can close underperforming programmes, reduce prices, or invest in career placement to lift graduate earnings above the threshold.

Consumer advocates say even a narrowly targeted college earnings test matters because the affected students are often among the most vulnerable: low-income learners and first-generation students drawn to career programmes with heavy marketing and weak outcomes. Protecting those aid dollars, they argue, starts with ensuring the programmes receiving them deliver on their promises.

The American University analysis suggests the department's bet is precision rather than breadth: a college accountability measure that leaves the vast majority of programmes untouched while forcing a reckoning for the small share that consistently leave graduates worse off. The college earnings test, supporters say, is exactly what the college accountability push intended.