The Trump administration is set to implement a new regulatory framework on July 1 that will link federal student loan eligibility to graduate earnings, marking a significant shift in how federal funding is allocated to college programs. This move aims to ensure that educational programs demonstrate their ability to improve students’ financial outcomes before receiving federal support.

Under the new rules, colleges and universities must prove that their graduates earn more than the median income of high school graduates within four years of completing their degree. For master’s programs, graduates must surpass the median income of bachelor’s degree holders. Programs will be required to meet these earnings thresholds in at least two out of three consecutive years to maintain access to federal loans.

Approximately 3,200 programs, affecting nearly 690,000 students who rely on federal loans, are projected to fail this earnings test. Programs in fields such as ministry, barbering, massage therapy, and cosmetology could face significant challenges under the new eligibility requirements. However, the Department of Education has introduced some accommodations in response to feedback from educational institutions and advocacy groups. For example, income from tips will now be considered for fields where it constitutes a significant portion of graduates’ earnings, potentially aiding programs with lower baseline salaries.

Additionally, a “parachute option” has been created for programs that fail the earnings test after the first year. This option allows these institutions to lose access to federal student loans while remaining eligible to receive Pell grants, which are targeted at low-income students. According to Under Secretary of Education Nicholas Kent, this provision is expected to preserve Pell grant eligibility for about 600 religious-affiliated programs.

Kent emphasized the administration’s intent to enforce accountability in higher education spending, stating that programs unable to prove graduates are financially better off should not receive federal taxpayer support. This initiative builds upon a 2016 Obama-era rule that sought to curb access to federal funds for low-quality and predatory programs, particularly within the for-profit college sector, but expands oversight to include non-profit institutions as well.

Ted Mitchell, president of the American Council on Education, acknowledged reservations about certain aspects of the policy but expressed overall support. “We think institutions should be better about providing programs that give a livable wage and if they’re not, they should either fix the programs or stop them,” Mitchell said.

Earnings data will begin to be collected in October, with 2027 marking the first year that schools will be held accountable under the new standards. The student loan program, established in the 1950s, has played a critical role in expanding college access but has also been criticized for contributing to increased tuition costs and ballooning student debt, which now totals $1.7 trillion nationwide.

The administration’s directive represents a comprehensive attempt to recalibrate federal investment toward programs that demonstrably enhance graduates’ earning potential, encouraging institutions to either reform underperforming programs or seek alternative funding sources.