New Federal Rule Could Cut Student Loan Access for Low-Earning College Programs

The Department of Education has proposed a groundbreaking rule that could restrict federal student loan access for college programs whose graduates earn less than expected. This move aims to hold educational programs accountable for their graduates’ financial outcomes, potentially affecting thousands of programs across the U.S.

With over $1.7 trillion in federal student loan debt outstanding, the new rule seeks to protect students from accumulating debt in programs that don’t lead to sufficient earnings. It also promises greater transparency in higher education, helping students make informed decisions about their futures.

How the Earnings Test Will Impact College Programs

The proposed rule requires undergraduate programs to ensure their graduates earn at least as much as workers with only a high school diploma, while graduate programs must outperform earnings benchmarks tied to bachelor’s degree holders. Programs failing this test in two out of three years risk losing federal loan eligibility and, in some cases, Pell Grant access.

Nearly 2,000 colleges have at least one program at risk, potentially affecting over 600,000 students. These programs range from vocational certificates like cosmetology to degrees in music, fine arts, and certain health fields, highlighting the broad scope of the policy’s reach.

The Bigger Picture: Student Debt and Accountability

Preston Cooper, senior fellow at the American Enterprise Institute, emphasizes the financial risks students face when enrolling in low-value programs. “Some people take out loans for programs that really just don’t have a whole lot of economic value,” he said. “They end up with a lot of debt, and then they don’t really have the earnings to repay that debt.”

The rule is part of President Trump’s One Big Beautiful Bill and could be finalized by July 1. It uses IRS data to measure graduate earnings and mandates that flagged programs notify students about their low earning outcomes, promoting transparency and informed decision-making.

Upcoming Changes in Graduate Loan Limits

Alongside the earnings rule, the Grad PLUS loan program will be phased out starting July 1, 2026. New borrowing caps will limit professional students in fields like law and medicine to $50,000 per year, with a $200,000 lifetime cap, while other graduate students will face lower limits. These changes aim to curb excessive borrowing and align loan availability with realistic earning potential.

The Debate Over College Value and Workforce Needs

As tuition costs soar and student debt burdens grow, many young graduates face unemployment or underemployment. Data shows 5.6% of recent graduates are unemployed, and 42.5% are underemployed, challenging the traditional promise that a degree guarantees a stable, well-paying job.

Meanwhile, the rise of AI and shifting job markets have sparked debate about what skills higher education should prioritize. Some experts argue for the enduring importance of humanities and liberal arts, which cultivate uniquely human skills essential for the future workforce.

“I actually think studying the humanities is going to be more important than ever... understanding ourselves, understanding history, understanding what makes us tick—I think that will always be really, really important.”—Daniela Amodei, Anthropic President

Looking Ahead: Transparency and Student Empowerment

Experts agree that increased transparency at the program level will empower students to make smarter choices and avoid debt traps. Steve Taylor, policy director at Stand Together Trust, notes that while college offers cultural and civic benefits, federal debt demands accountability for programs’ economic outcomes.

Greater clarity could also elevate alternative pathways like skilled trades and career-focused training, broadening opportunities beyond the traditional four-year degree model.

“We should be giving students the tools to recognize what are the high-value pathways within each of those sectors.”—Preston Cooper, American Enterprise Institute

As these reforms take shape, the higher education landscape may shift toward rewarding programs that truly deliver value, helping students and taxpayers alike avoid costly dead ends.