Education Department Finalizes Rule Cutting Federal Student Loans for Low-Earning Career Programs

The U.S. Department of Education has approved a final rule limiting federal Direct Loan eligibility for college programs that produce graduates with low earnings. The policy, part of the Student Tuition and Transparency System and Earnings Accountability initiative, replaces prior debt-to-earnings metrics with a new earnings premium test to ensure programs deliver financial value to students and protect taxpayers.

Under the rule, bachelor’s degree programs must show that median earnings of graduates exceed the average earnings of high school graduates. Master’s programs must demonstrate earnings above those of typical bachelor’s degree holders. Programs failing this test in two out of three consecutive award years lose eligibility for federal Direct Loans. The change applies to programs participating in Title IV federal student aid.

Data from the department indicates high failure rates in certain fields. Bachelor’s programs in Religion and Religious Studies show a 53.3% failure rate, while Graphic Communications reaches 17.7%. Master’s programs face even steeper challenges: Religion and Religious Studies at 89.4%, Mental and Social Health Services at 64.3%, Fine and Studio Arts at 44.1%, and Music at 41.8%. These outcomes reflect programs where graduates often earn below benchmarks despite significant borrowing.

Under Secretary of Education Nicholas Kent emphasized accountability. “If a program cannot show that it leaves its graduates financially better off than if they had never enrolled, it should not be underwritten by federal taxpayers,” he stated. The department views the rule as addressing the $1.7 trillion student loan portfolio and delinquency rates exceeding 10% for balances three months past due. Officials argue the earnings test provides a clear, objective measure of program success over subjective claims of “social value.”

The policy includes adjustments following public comment. Programs preparing students for tipped income will pause data collection for at least one year to account for the “No Tax on Tips” policy. Institutions can negotiate a five-year pause on Direct Loans for programs not yet labeled low-earning. Schools serving individuals with qualified disabilities receive exemptions from eligibility consequences. Religious programs, which face disproportionate impact, retain access to Pell Grants even if Direct Loans are restricted.

Critics, including the National Education Association and Association of American Universities, argued the rule unfairly targets fields with public or cultural value, such as arts, religion, and public service, where non-monetary benefits matter. The Defense of Freedom Institute raised First Amendment concerns, claiming the earnings focus burdens religious institutions and ministry programs. Supporters counter that federal loans represent taxpayer-backed debt, and programs failing to improve graduates’ finances should not receive automatic access.

This action aligns with broader Trump administration efforts to reform higher education accountability through legislation like the One Big Beautiful Bill Act. The department describes it as a once-in-a-generation opportunity to curb unsustainable borrowing and impose uniform standards across institutions. By tying loan eligibility to earnings outcomes, the rule aims to steer students toward programs with stronger return on investment while reducing default risks.

Colleges and universities offering affected programs must now demonstrate improved graduate earnings or risk losing federal loan access for new students. The policy is expected to encourage institutions to focus on career-oriented tracks with clear economic benefits. Students pursuing degrees in high-failure fields may face limited federal financing options, potentially shifting enrollment toward more viable programs or alternative funding sources.

The final rule reflects a commitment to financial responsibility in federal student aid. With national student debt at record levels, tying eligibility to measurable earnings success prioritizes outcomes over access alone. Implementation will require institutions to adapt, while providing targeted flexibility for certain programs and populations. The Education Department continues monitoring data to refine accountability measures and ensure taxpayer resources support education that delivers lasting financial stability.