All college programs now face an earnings premium test. Here’s what you need to know

The new federal earnings premium test has generated a lot of discussion, and with it, some confusion. Will it ban certain colleges’ majors? No. Instead, the rule sets a basic expectation: college programs enrolling students who receive federal student aid must show that the program leaves their graduates better off than if they had never enrolled.  

The “do no harm” earnings standard was enacted into law in the One Big Beautiful Bill Act (OB3) and the U.S. Department of Education (ED) finalized its regulations on July 1. IHEP supports this important accountability safeguard to protect students’ investments and provide incentives for colleges to improve student outcomes. Below, we break down what the regulations do, how they’ll work, and what they mean for students.  

What does the earnings premium test mean for students?

The federal earnings premium test establishes a floor that protects students from taking on debt for programs that leave them worse off than if they hadn’t attended at all. To maintain access to federal student loans, undergraduate programs must help completers earn at least as much as someone with only a high school diploma, and graduate programs must help completers earn at least as much as a bachelor’s degree recipient. Most programs clear that bar, including over 99 percent of bachelor’s degree programs, according to IHEP estimates.  

How does ED determine which programs clear the bar?

The earnings benchmarks depend on the program’s credential level and whether the institution mostly enrolls in-state students.   

• Undergraduate programs: ED uses the median earnings of high school graduates in the state. If fewer than half of the institution’s enrolled students are in-state, ED uses the median earnings of high school graduates nationally. 

• Graduate programs: ED uses the lowest of three benchmarks for bachelor’s degree holders: median state earnings in the same field of study, median state earnings, or median national earnings in the same field of study. If fewer than half the institution’s students are in-state, ED will use lower of the national overall or national same-field benchmark. 

These benchmarks are calculated using U.S. Census Bureau American Community Survey (ACS) data on earnings for working adults ages 25-34. ED will publish a list of all the ACS earnings thresholds annually. If ACS data are unavailable, ED will set the earnings threshold to $1, and the program will pass. This fallback is expected to mainly affect graduate programs because ACS samples may include too few bachelor’s degree holders in the same state and field of study to calculate a reliable benchmark.  

The median earnings of program graduates come from the Internal Revenue Service (IRS) and measure how much students earn four years after completing the program. The earnings data include federally aided students who completed the program during the cohort period, are working, and are currently not enrolled at an institution of higher education during the earnings year. 

This is not the first time an earnings premium test has been applied to college programs. The “gainful employment” regulations developed during the Biden Administration included a similar earnings premium test, though it was not applied to all programs.  

What happens when a program fails?

After a program fails for the first time, the institution must warn current and prospective students that the program is at risk of losing Direct Loan eligibility. The institution may opt to withdraw the program from Direct Loan participation or close it.  

The Department will designate programs that fail in two out of three consecutive years as low-earning outcome programs, which can lose Direct Loan eligibility as early as 2028. If students in low-earning outcome programs account for more than half of an institution’s Title IV aid recipients or total Title IV funding in two out of three consecutive award years, those programs can lose access to all Title IV aid, including Pell Grants, as early as 2029.  

The regulations also delay consequences for one year for programs in fields where a substantial share of income comes from tips. This delay will primarily affect cosmetology programs at for-profit colleges. 

What comes next?

First, ED will send colleges a draft list of Title IV program completers and institutions will have 60 days to review and correct the information. The IRS will then calculate median earnings for those completers. ED will publish the first results by July 2027, primarily using 2025 calendar-year earnings data for students who completed their programs during the 2020-21 year.  

Additionally, in 2027, ED plans to publish new program-level cost, debt, and outcomes information. Colleges have already been required to report several years of data as part of the Financial Value Transparency Framework or its replacement, the Student Tuition and Transparency System (STATS). These program-level data will empower students and families to make more informed decisions about where to enroll and what to study, support institutional improvement efforts, and inform evidence-based policymaking.  

Students should be able to count on their college education to improve their financial prospects. The new federal earnings premium test takes an important step toward delivering on that promise.