Department of Education’s Final Earnings Accountability Rule for Higher Ed Institutions Relaxes Some of the Proposed Provisions

On July 1, 2026, the Department of Education published the final earnings accountability rule in the Federal Register. The earnings accountability rule replaces the Financial Value Transparency and Gainful Employment (FVT/GE) regulation, applying a single metric to most undergraduate and graduate certificate and degree programs at institutions of higher education across the country. The metric aims to evaluate whether programs of higher education provide value to their graduates by assessing whether program graduates earn more than individuals who did not enroll in such programs. Programs that fail the metric will have limited access to the Direct Loan program and potentially all Title IV funds.

The final rule, officially titled Accountability in Higher Education and Access Through Demand-Driven Workforce Pell: Student Tuition and Transparency System (STATS) and Earnings Accountability (RIN 1840-AE06), will generally become effective on July 1, 2027, and grants programs that rely on tipped income delayed implementation until July 1, 2028. But the final rule also eliminated the FVT/GE regulation’s reporting requirements on July 1, 2026, and notes that the Department will assume that institutions that fail to report information required by the FVT/GE have opted to implement the earnings accountability rule early.

Read on to learn the key provisions of the earnings accountability rule, and the differences between the final rule and the proposed rule published on April 20, 2026.

I. Early Implementation

While most of the earnings accountability rule’s provisions are not effective until July 1, 2027, the elimination of the reporting obligations under the FVT/GE became applicable on July 1, 2026. Under the FVT/GE regulation, institutions were required to report more information to the Department than under the earnings accountability rule. The earnings accountability rule and Federal Student Aid’s Electronic Announcement explain that institutions may choose to continue reporting the annual information required by FVT/GE regulations. But, if an institution chooses not to report that information, the Department will assume that the institution elected to implement the earnings accountability rule early. Accordingly, the Department will apply the earnings accountability rule to an institution that fails to submit information previously required under the FVT/GE regulation.

II. Earnings Accountability Metric

At a high level, the proposed earnings accountability metric is largely the same as in the proposed rule. The final rule compares the earnings of undergraduate program graduates in their fourth tax year after completing an undergraduate program to working adults aged 25-34 with only a high school diploma from the state in which an institution is located. If fewer than 50% of students enrolled in an institution are from the state where an institution is located, then graduates’ earnings are compared on a nationwide scale. The final rule applies the same metric for graduate programs except the graduate metric compares earnings of graduate program graduates to those who possess a baccalaureate degree in the same field of study aged 25-34. Like the proposed rule, the final rule applies this metric to all gainful employment and eligible non-gainful employment programs, including undergraduate certificate programs.

But the final rule permits exclusions that the proposed rule did not permit. First, the final rule provides an exemption for small programs. Under the final rule, the Department only applies the earnings accountability metric to a small program if the “expanded cohort metric” has at least 30 completers. The “expanded cohort metric” provision allows the Department to consider prior award year data of up to seven award years before the calculation year. If the Department cannot generate a list of 30 completers using the expanded cohort data, it does not apply the earnings accountability metric to small programs.

The final rule also permits seven other exclusions from the earnings accountability metric. Five exclude students from the earnings premium calculation, and two exclude certain programs entirely. Students excluded from the metric include:

(1) students whose loans are discharged based on total disability;

(2) students who were enrolled in any other educational program during the calendar year the Secretary obtained program information;

(3) students who have died;

(4) for undergraduate programs, students who completed a higher credentialed undergraduate program at the institution subsequent to completing the program tested; and

(5) for graduate programs, students who completed a higher credentialed graduate program.

Programs excluded from the metric include:

(6) prison education programs; and

(7) comprehensive transition and postsecondary programs.

III. Student Warnings

The student warning provisions in the final rule are the same as in the proposed rule. They require that institutions send a warning to current and prospective students in a particular program if the program fails the earnings accountability metric for one year. At that point, the Secretary notifies the institution of the potential that its program may become ineligible for some or all Title IV aid.

IV. Low-Earning Outcome Programs

Like the student warnings provisions, the definition of low-earning outcome programs is the same in the final rule as in the proposed rule. Under that provision, if a program fails the earnings accountability metric for two out of three consecutive years, the program will be listed as a “low-earning outcome program.” The Department states that the earliest that most programs will become eligible to lose federal Direct Loans is 2028-29, after the Department calculates the earnings accountability metrics in 2027 and 2028. Because of the delay authorized for the specific CIP codes referenced below, this rule will not apply to certain programs until 2029.

V. Administrative Capacity

The administrative capability standard is similar to the standard in the proposed rule. However, the final rule provides a significant carveout and an alternative avenue for programs to avoid the penalties imposed by the administrative capability standard.

The administrative capability standard provision notes that if more than half of an institution’s Title IV recipients are enrolled in low-earning outcome programs or more than half of the institution’s total Title IV funds are disbursed to students enrolled in low-earning outcome programs for two out of any three consecutive award years, harsh consequences apply. In those cases, an institution will be placed on provisional program participation agreement status, which carries its own set of consequences, and all of an institution’s low-earning outcome programs will lose Title IV aid eligibility, including Pell Grant eligibility.

If an institution has not participated in the Direct Loan program in the five most recently completed award years — as is true for several institutions that only accept Pell Grants — the administrative capability standard does not apply. Accordingly, programs that have not participated in the Direct Loan program will retain Pell Grant eligibility.

The final rule permits an institution to retain Pell Grant eligibility for a program if it undergoes the voluntary removal process or initiates an orderly program closure. The voluntary removal process allows an institution to remove a program that failed the earnings accountability metric for a single year from the Direct Loan program for at least five years. By taking this action, the failing program may retain access to Pell Grants. Similarly, under the orderly program closure provision, a program that failed the earnings accountability metric may retain Direct Loan eligibility for no more than three years as it closes. But it must maintain a warning status and provide notice to students of the program’s closure during that period. If an institution initiates the orderly program closure, it cannot restart the same program for at least two years following its closure. If an institution does not take any of these steps, the administrative capability standards will apply to its failing programs.

VI. Delayed Implementation for Programs in Careers with Predominantly Tipped Income

Significantly, the Department has permitted a delayed implementation provision for programs that train students in industries that rely on tipped income. The Department concluded that underreporting tips may make accurate assessments of earners’ income unreliable in industries that rely significantly on tipped income. The Department concluded that the One Big Beautiful Bill Act’s or Working Families Tax Cuts Act’s “no tax on tips” provision should remove the incentive for individuals not to report tips and increase the accuracy of workers’ earnings. On that basis, the Department concluded that it will begin enforcing the earnings accountability metric for these programs in 2028, after IRS data with the “no tax on tips” provision in effect exists.

The Department identified programs eligible for delayed implementation by relying on the list of occupations in the Department of Treasury’s “no tax on tips” policy. The Department limited eligible occupations to include only those in which 50% or more of tax filers reported at least $100 in tipped income. It then linked those occupations to programs with six-digit standard occupational classification (SOC) codes and matched the SOC codes to six-digit classification of instructional program (CIP) codes. Applying that methodology, the Department found 20 CIP codes eligible for delayed implementation:

1. Cosmetology/Cosmetologists General (12.0401)
2. Barbering/Barber (12.0402)
3. Electrolysis/Electrology and Electrolysis Technician (12.0404)
4. Make-Up Artists/Specialist (12.0406)
5. Hair Styling/Stylist and Hair Design (12.0407)
6. Facial Treatment Specialist/Facialist (12.0408)
7. Aesthetician/Esthetician and Skin Care Specialist (12.0409)
8. Permanent Cosmetics/Makeup and Tattooing (12.0411)
9. Salon/Beauty Salon Management/Manager (12.0412)
10. Cosmetology, Barber/Styling, and Nail Instructor (12.0413)
11. Master Aesthetician/Esthetician (12.0414)
12. Cosmetology and Related Personal Grooming Arts, Other (12.0499)
13. Bartending/Bartender (12.0502)
14. Casino Operations and Services, General (12.0601)
15. Casino Dealing (12.0602)
16. Massage Therapy/Therapeutic Massage (51.3501)
17. Asian Bodywork Therapy (51.3502)
18. Somatic Bodywork (51.3503)
19. Somatic Bodywork and Related Therapeutic Services, Other (51.3599)
20. Casino Management (52.0908)

Although the Department will not determine whether programs with these CIP codes pass or fail until 2028, it will still calculate the earnings measure for these programs before that date.

VII. Appeals Process

The final rule retains the limited appeals option in the proposed rule. That process provides that after an institution is notified that one of its programs has failed the earnings accountability metric, institutions will have 30 days to appeal the Secretary’s determination. Any appeal must be based on an error in the calculation of the program’s earnings accountability metric, though the final rule language also provides the Secretary discretion to consider “other bases of appeal.” And if an appeal does not change the Department’s initial determination, the program’s Direct Loan eligibility ends on the date listed in the Department’s initial determination. Institutions may separately appeal the Department’s determination that it fails the administrative capability standards.

VIII. Regaining Direct Loan Eligibility

The final rule provides that an institution may not reestablish the same program if the program was voluntarily discontinued by the institution or received the low-earning outcome designation for at least two years. An institution may also not reestablish a program that shares the same four-digit CIP code and an overlapping SOC code with a program. A program must pass the earnings accountability metric to regain eligibility.

IX. STATS Data Reporting and Correction Process

Like the proposed rule, the final rule requires institutions offering gainful employment and eligible non-gainful employment programs to report the total amount of federal, state, private grants and scholarships for students who completed or withdrew from the program during the award year. This provision takes effect on July 1, 2026, a full year before the other provisions.

Based on this data, the rule requires the Secretary to share the list of program completers that the Department intends to use with each institution prior to calculating the earnings accountability metric. It also gives each institution 60 days to correct the information presented to it.

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The Department’s final earnings accountability rule retains the same general features as the proposed rule. Like the proposed rule, the final rule calculates whether an undergraduate or graduate degree program is accountable by evaluating program completers’ earnings to those of high school graduates or baccalaureate graduates who did not enter such programs. The final rule also applies an administrative capability standard that threatens institutions’ access to all Title IV funds, including Pell Grants. Finally, like the proposed rule, the final rule allows for only a limited appeals options based on the Department’s miscalculation.

But the final rule lessens the severity of the proposed rule. While the final rule retains the earnings accountability metric’s general features, it also recognizes seven exceptions that were not permitted under the proposed rule. And while the administrative capability standard poses the same consequences in the proposed rule, it offers three possible avenues for institutions to limit the harsh consequences of failing the standard.

Finally, according to Federal Student Aid’s Electronic Announcement and the preamble to the final rule, institutions should be aware that they must submit information to the Department that the FVT/GE regulations previously required if they do not wish for early implementation of the earnings accountability rule.

McGuireWoods offers an interdisciplinary team of attorneys who focus on education law and features a Higher Education Enforcement and Regulatory Counseling Practice Group. McGuireWoods’ attorneys serve as trusted advisers to proprietary and nonprofit colleges and universities. For questions concerning this alert, please contact the authors.