Colleges Whose Graduates Underperform Would Lose Access To Federal Aid Under New Rule

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The Department of Education on Friday proposed a new rule that would cut off federal student loans to college programs whose graduates earn less than typical high school graduates, a measure Congress mandated in last year's One Big Beautiful Bill Act.

Under the proposal, an undergraduate program would lose access to federal Direct Loans and, in some cases, Pell Grants if the typical undergraduate student at a college routinely earned less than high school graduates ages 25 to 34 in the state after entering the workforce. Graduate programs would face a similar test against holders of bachelor's degrees.

It replaces a Biden-era measure that tracked graduates' earnings by college and determined whether those earnings were enough to repay their student debt. The proposed rule is open for public comment through May 20 and is scheduled to take effect July 1.

The Department of Education would start tracking schools under the rule during the 2026-27 academic year, though the earliest a program could lose access to federal student loans would be during the 2028-29 academic year.

Many students borrow for college. While most students receive a good return on investment, others, especially those with lower incomes and employment levels, struggle to repay their debt. Borrowers who pay the minimum each month on their debt often see their loan balance increase as interest accrues.

Congress mandated new accountability measures in the One Big Beautiful Bill Act, as well as other changes to federal financial aid. Proponents say the new measures are necessary to keep students and the government from paying for programs with little economic benefit.

The average cost of college in constant dollars has risen by 128% over 60 years, according to the National Center for Education Statistics. And yet, college graduates' earnings have fallen relative to those of high school graduates, and unemployment among recent college graduates has risen above the overall U.S. rate, according to data from the Federal Reserve Bank of New York.

To pressure institutions to lower tuition, Congress lowered federal student loan caps for students and their families. In addition, Pell Grants can now be used for certificate or license programs, which are typically less costly than four-year programs.

Prospective students will also be able to review whether a program's graduates make less than the median earnings of high school graduates when comparing schools.

Institutions already face penalties when too many of their graduates fall behind on federal student loans. The Department of Education measures the percentage of a college's graduates who default on their student loans within three years of entering repayment. Schools with default rates above 40% in a single year can lose access to Direct Loans; those with default rates of 30% or higher for three consecutive years can lose access to Direct Loans and Pell Grants.

Additionally, under the One Big Beautiful Bill Act, colleges will have more control over the amount of federal loans a college student can borrow for particular programs. For example, if graduates of a given major tend to default, the school can cap borrowing for students in that program.

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