On April 20, 2026, the Department of Education (ED) published a Notice of Proposed Rulemaking for a new rule that would implement the earnings accountability provisions of the One Big Beautiful Bill Act (OBBBA). The proposed rule, which is a product of negotiated rulemaking, applies to most programs at institutions receiving Title IV funds, including undergraduate and graduate certification programs as well as undergraduate, graduate and professional degree programs.
The proposed rule, “Accountability in Higher Education and Access through Demand-driven Workforce Pell: Student Tuition and Transparency System (STATS) and Earnings Accountability” (RIN 1840-AE06), is available for public comment until May 20, 2026.
Gainful Employment Rule Replaced
Since July 1, 2024, the ED has applied the Financial Value Transparency and Gainful Employment (FVT/GE) framework to determine whether gainful employment programs at institutions receiving Title IV funds remain eligible for federal student loans. The current FVT/GE framework requires gainful employment programs to comply with the debt-to-earnings (D/E) ratio and the earnings premium measure to retain access to federal student loans. The D/E ratio requires that a median graduate’s annual loan payments not exceed 8% of annual earnings or 20% of discretionary income. The earnings premium measure requires that at least half of a program’s graduates earn more than a typical high school graduate in the state where the Title IV institution overseeing the program operates. But the FVT/GE framework is limited in that it imposes no requirement on postsecondary programs that do not qualify as “gainful employment” programs.
The proposed rule would replace the FVT/GE framework with a “revised earnings premium measure” — or earnings accountability metric — that applies to most postsecondary programs, including undergraduate and graduate degrees and certificate programs, that participate in the Direct Loan Program. The earnings accountability metric closely resembles the FVT/GE’s earnings premium measure but discards the D/E ratio entirely.
The proposed rule determines whether a program satisfies the earnings accountability metric by comparing program graduates’ median annual earnings to an earnings threshold — the median earnings for working adults with less education ages 25 to 34. The ED determines program graduates’ median annual earnings by identifying IRS-reported earned income in the fourth tax year after completion of a program. The ED determines the earnings threshold by reference to American Community Survey (ACS) data. For undergraduate degree programs and certificate programs, the ED compares graduates’ earned income to that of working adults with a high school diploma or equivalent as determined by the ACS. For graduate degree programs, the ED compares graduates’ earned income to that of working adults with a bachelor’s degree alone. In most cases, a program’s graduates are compared to the average in the same state as the institution operating the program. But if fewer than 50% of the students in a program are from the state where the institution is located, or if the institution operating a program is foreign, then program graduates’ income is compared to a national average rather than a state average.
Under the proposed rule, a program at an institution receiving Title IV funds that fails the earnings accountability metric in two of any three consecutive years would be designated a “low-earning outcome program,” and would lose eligibility to Title IV funds for two years.
And if more than half of an institution’s Title IV recipients are enrolled in low-earning programs or if more than half an institution’s Title IV funds come from low-earning outcome programs, those programs may also lose access to Pell Grants under the new “administrative capability standard.”
The ED argues that the OBBBA gives it the authority to bypass the Higher Education Act’s Master Calendar requirement, which requires a final rule to be published by Nov. 1 of the preceding year to become effective on July 1 of the next year. Under the ED’s view, the OBBBA displaces that requirement, allowing the proposed rule to become effective on July 1, 2026. Some negotiators noted that the Master Calendar requirement may apply at least to certain provisions of the proposed rule. The Master Calendar provision in Title IV requires a final rule to be published by Nov. 1 to become effective by July 1 of the following year such that any final rule would become effective on July 1, 2027, at the earliest.
Consequences for Failing Programs
Under the proposed rule, programs that fail the earnings accountability metric face a tiered set of consequences. Programs that fail the accountability metric for a single year must warn prospective students and current students of the program’s failure. Programs that fail for one year may also begin an “orderly program closure” if the Secretary agrees that the closure process is in the students’ best interest. Meanwhile, programs that fail for two out of three consecutive years will lose eligibility for direct loans.
The revised administrative capability standard imposes additional consequences on institutions when more than half of the institution’s Title IV recipients are enrolled in low-earning outcome programs or if more than half of the Title IV funds the institution receives are disbursed to students in low-earning outcome programs. In those cases, if the institution does not meet the administrative capability standard for two out of three years, the ED may place the institution on provisional Program Participation Agreement (PPA) status, and the failing institutions would lose access to Pell Grant eligibility.
Each of these consequences is described below:
- Disclosure Requirements: The proposed rule would require institutions to warn prospective students of the program’s failure before enrollment. Institutions must also warn current students when a program has failed the earnings accountability metric for at least one year.
- Orderly Program Closure Option: A program that failed the earnings accountability metric in a single year may voluntarily agree to begin an “orderly program closure” if the Secretary agrees that it is in the best interests of the students. This process permits a failing program to teach out existing students if the program ceases new enrollments and provides warnings to current program students. The closure option only lasts for the lesser of three years or the full-time duration of the failing program. Finally, this option requires the institution and the Secretary to agree to make certain amendments to the institution’s PPA.
- Loss of Direct Loan Eligibility: A program that fails the earnings accountability metric in two out of three consecutive years loses eligibility for direct loan funds. The program generally remains ineligible for two years.
- Loss of Pell Grants: Under the administrative capability standard, if more than half of an institution’s Title IV recipients are enrolled in, or if more than half of an institution’s total Title IV funds are disbursed to, students enrolled in low-earning outcome programs for two of three consecutive years, the institution loses access to Pell Grants as well as other Title IV funds.
- Provisional Certification: Under the administrative capability standard, if more than half of an institution’s Title IV recipients are enrolled in, or if more than half of an institution’s total Title IV funds are disbursed to, students enrolled in low-earning outcome programs for two of three consecutive years, the ED may place the institution on provisional PPA status, and each of the institution’s low-earning outcome programs would be ineligible for all Title IV funds.
Under the proposed rule, the earliest date an institution would lose access to Title IV funds due to its failure to satisfy the earnings accountability metric is July 1, 2028, but the earliest an institution will qualify for provisional certification or loss of Pell Grants is July 1, 2029. The timing difference is because whether an institution meets the new administrative capability standard depends on if a program is deemed a low-earning outcome program, and the ED only makes that determination on July 1, 2027. An institution must then fail the administrative capability standard for two consecutive years after July 1, 2027, for those consequences to apply.
Undergraduate Certificate Programs
Though the OBBBA only applies the earnings accountability metric to graduate certificates, or undergraduate, graduate or professional degree programs, the ED’s proposed rule applies the metric to undergraduate certificate programs as well. The ED asserts that its preexisting regulatory authority over gainful employment programs emanates from Sections 102 and 454 of the Higher Education Act and its general authority over educational programs in the General Education Provisions Act. In support, the ED cites extensively to a federal district court case that held that the ED had sufficient authority for the current FVT/GE framework — American Assoc. of Cosmetology Sch. v. Dep’t of Educ., 2025 WL 4219345 (N.D. Tex. Oct. 2, 2025). The ED also argues that the OBBBA did not forbid the application of the earnings accountability metric to undergraduate certificate programs nor prevent the ED from doing so.
But some negotiators point out that Congress deliberately excluded undergraduate certificate programs from the earnings accountability metric in the OBBBA. They also note that the case on which the Department relies is currently pending appeal in the U.S. Court of Appeals for the Fifth Circuit. Finally, they indicate that the projected earnings increase for certificate programs may not be comparable to the projected increase for those entering graduate certificate or degree programs.
ED’s Request for Stakeholder Input
The ED is seeking stakeholder input on several directed questions:
- Definition of “Earnings”: Whether the proposed earnings definition — which relies on IRS-reported earned income — accurately captures all relevant earnings despite concerns that not all income (such as tipped income or housing benefits) will be reflected in the data.
- Process by which “Fields of Study” are defined to determine earning thresholds for graduate-level programs: Whether to use the Census Bureau’s ACS data to calculate the state-level earnings threshold for graduate programs despite a risk of low sample sizes. The ED recognizes that, especially in uncommon fields of study and in less-populated states, the ACS may not sample any individuals who meet the criteria. When fewer than 30 individuals are sampled, the ED proposes not calculating the measure altogether and relying on other measures instead. The ED is also interested in feedback on whether grouping fields of study into broader categories or using alternative Census Bureau datasets could improve the reliability of the calculation.
For questions about the proposed rule or assistance preparing public comments, contact the authors or a member of the firm’s Education Industry Team.