How the Earnings Test Works

A visual guide to the STATS Earnings Accountability rule that measures whether college programs deliver economic value to their graduates.

01

The Core Question

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How much do graduates earn 4 years after leaving?

$60,000

This is the median earnings across all testable programs, measured 4 years after graduates leave school. It comes from IRS tax records linked to federal student aid records. Graduates with zero earnings — those who are unemployed, self-employed without W-2 wages, or out of the labor force — are excluded. This makes the number more favorable to programs than if non-earners were counted.

A note on what this number leaves out: This zero-earner exclusion compounds with the ACS measurement issue covered in the next section. The program side (IRS) excludes non-workers, which biases earnings up. The benchmark side (ACS) is self-reported and includes all workers, including the self-employed, which can bias in either direction. For a field like cosmetology, where many graduates are self-employed (booth renters, independent stylists), the test creates a double mismatch: the program earnings miss their self-employment income (IRS captures W-2 only), while the benchmark includes self-employed high school grads. Both effects work against those programs.
02

The Benchmark

The earnings test doesn't compare programs to an arbitrary number. It asks: do graduates earn more than people with less education? The specific benchmark depends on two things: the degree level and where students come from.

What type of program?
Undergraduate (Associate / Bachelor's)
Mostly in-state students?
Compare to: median earnings of high school graduates in that state
Mostly out-of-state students?
Compare to: median earnings of high school graduates nationally
Graduate (Master's / Doctoral / Professional)
Mostly in-state students?
Compare to the lowest of three benchmarks:
• Same-state, same-field BA holders
• Same-state BA holders (any field)
• National same-field BA holders
(Uses whichever is lowest — most favorable to the program)
Mostly out-of-state students?
Compare to the lower of two benchmarks:
• National same-field BA holders
• National BA holders (any field)
(Uses whichever is lower)
A note on measurement: The benchmarks come from the American Community Survey (Census Bureau), which is based on self-reported income. Program earnings, by contrast, come from IRS tax records — actual W-2 wages reported to the government. These two data sources don't measure income the same way. Self-reported survey earnings tend to be less precise (people round up or down, estimate, or omit income), while IRS data captures only W-2 wages and misses self-employment income. The result: the test compares administrative tax data against survey-based estimates, which can introduce subtle bias in either direction depending on the field and income level.
03

The Test

Select an example to see how different programs compare against their benchmark.

Registered Nursing (BSN) — Ohio University, OH
Program Earnings (IRS W-2, 4yr post-exit)
$87,308
Benchmark (OH high school grad median — ACS)
$34,808
PASS
Graduates earn $52,500 more than the benchmark.
04

What Happens When Programs Fail

The consequences are graduated, not immediate. A single year of failure does not result in loss of funding. The earliest any program can lose Direct Loan eligibility is Academic Year 2028-29.

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Year 1 — Warning

The Department publishes results. The institution must send a written warning to all current and prospective students, notify Pell recipients of remaining lifetime eligibility, and wait 3 business days after delivering the warning before allowing a prospective student to enroll.

The institution then has 120 days to choose one of three paths:

Option A — Voluntary Direct Loan Opt-Out

Block students in the failing program from borrowing federal Direct Loans for at least 5 years. In exchange, the program is shielded from institution-level sanctions while students can still receive Pell Grants. Preserves Pell revenue, forfeits loan volume.

Option B — Orderly Teach-Out

Stop admitting new students and conduct a teach-out for current students (up to 3 years or the program's normal duration, whichever is shorter). Title IV eligibility is maintained during the teach-out.

Option C — Take No Action

The program continues to face the test each year. If it fails again within the next two years, it becomes a “low-earning outcome program.” Once a program fails a second time, Options A and B are no longer available. This is a use-it-or-lose-it decision.

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Year 2 of 3 — Direct Loan Loss

If a program fails in 2 of any 3 consecutive years, it is designated a “low-earning outcome program” and loses eligibility for federal Direct Loans. Appeals are limited to calculation errors only — not program quality or alternative data. The program cannot be reestablished (or replaced with a substantially similar program) for at least 2 years. Students can still receive Pell Grants at this stage.

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Institutional trigger — All Title IV at risk

If an institution's low-earning outcome programs account for more than half of its Title IV recipients or more than half of its total Title IV dollars (in 2 of 3 consecutive years), the institution is placed on provisional certification and those programs lose eligibility for all Title IV aid, including Pell Grants.

Exemptions added by the final rule: Programs in tipped occupations (cosmetology, barbering, massage — 20 CIP codes) face delayed timelines before determinations begin. Non-Direct-Loan institutions (those not using DL for 5+ years, primarily religious institutions) are exempt from the institutional trigger. Institutions that exclusively serve students with specific learning disabilities or autism are exempt from eligibility consequences. And ~2,650 graduate programs where ACS benchmark data is unreliable default to a $1 earnings threshold, effectively guaranteeing a pass.
05

The Catch — What We Can't See

The earnings test can only measure programs with enough graduates to produce a statistic. A program needs at least 30 completers in the cohort period to be tested. Even below that regulatory threshold, IRS privacy rules suppress earnings data when fewer than ~16 graduates can be matched to tax records.

Pass
Fail
Suppressed

Only ~24% of programs have enough graduates to measure

The remaining ~76% are invisible to the test. The 2,880 failing programs identified in the data are likely a lower bound — many small, niche, or newly created programs simply can't be evaluated.