How the New Federal Earnings Test for Colleges Works
The STATS Earnings Accountability framework created a new accountability rule that compares program graduates' earnings to a regional benchmark. Here's how the test actually operates, what triggers sanctions, and when they bite.
Update, July 2026: This explainer was first published on April 24, 2026, before the rule was finalized. It has been updated to reflect the final rule language published July 1, 2026, including the graduated consequence ladder, the corrected institution-level trigger, and the new exemptions. For the full data analysis under the final rule, see Every Program, One Test: The STATS Earnings Accountability Final Rule.
For the first time, the federal government has drawn a line: if your program’s graduates earn less than high school graduates in the same region, your program fails.
Under the STATS Earnings Accountability framework, enacted through the Working Families Tax Cuts Act (originally the One Big Beautiful Bill Act), the Department of Education now measures the median earnings of program graduates four years after they leave school and compares them to a regional benchmark. Programs that fall short face sanctions, and if enough programs at an institution fail, the entire school could lose access to federal financial aid.
This post walks through how the test works. For an analysis of which programs actually fail under the new rule, see Which Programs Don’t Pay Off?
How the Test Works
The explainer below walks through the test step by step, including an interactive tool where you can click through real programs and see how they compare against their benchmarks.
What Happens Next
Programs that fail the earnings test don’t lose federal funding immediately. The consequences are graduated. After a first failure, the institution must warn current and prospective students, and it then has 120 days to choose one of three paths: voluntarily block Direct Loans for the program for at least five years, which shields it from institution-level sanctions while preserving Pell eligibility; begin an orderly teach-out and close the program; or take no action and face the test again. Once a program fails a second time, the first two options are off the table.
A program that fails in two of any three consecutive years is designated a “low-earning outcome program” and loses eligibility for federal Direct Loans. Appeals are limited to calculation errors, not program quality or alternative data. Because a program must fail twice first, the earliest Direct Loan losses cannot occur before Academic Year 2028-29, which gives institutions a window to improve outcomes or wind programs down.
As Robert Kelchen has noted, the earnings test doesn’t operate in isolation. Starting July 2026, new borrowing caps limit graduate students to $100,000 in total federal loans (down from unlimited Grad PLUS borrowing), while professional programs are capped at $200,000. For institutions already facing earnings test failures, the simultaneous loss of loan flexibility compounds the financial pressure on the very programs most likely to be affected.
The final rule also adds an institution-level trigger, and it is more targeted than a simple count of failing programs. If an institution’s low-earning outcome programs account for more than half of its Title IV recipients, or more than half of its Title IV dollars, in two of three consecutive years, the institution is placed on provisional certification and those programs lose eligibility for all Title IV aid, including Pell Grants. This is the framework’s most severe consequence, aimed at institutions where low-earning programs are the core of the portfolio rather than isolated outliers.
Finally, the final rule carved out several exemptions that were not in the proposed version. Programs for tipped occupations, such as cosmetology, barbering, and massage, get a delayed timeline before determinations begin. Institutions that have not used Direct Loans for five years are exempt from the institution-level trigger. Institutions that exclusively serve students with specific learning disabilities or autism are exempt from eligibility consequences. And graduate programs in fields and states where the benchmark data is too thin to be reliable default to a $1 threshold, which effectively guarantees a pass.
Read More
Now that you know how the test works, see what the 2026 data actually shows: Which Programs Don’t Pay Off? analyzes the 2,880 programs that fail under the new rule.