The final rule represents a fundamental shift for higher education by implementing for the first time a congressionally mandated earnings-based metric that applies to all Title IV institutions and all of their Title IV eligible programs.

On July 1, 2026, the U.S. Department of Education published a final rule implementing a new Title IV-program earnings premium measure established by Congress one year ago in the Working Families Tax Cut Act (also known as the “One Big Beautiful Bill Act”). The final rule, titled “Accountability in Higher Education and Access Through Demand-Driven Workforce Pell: Student Tuition and Transparency System (STATS) and Earnings Accountability,” stays close to the consensus language agreed upon in the Department’s Accountability in Higher Education and Access through Demand-Driven Workforce Pell (AHEAD) negotiated rulemaking, with some important changes noted below after public comment following publication of the notice of proposed rulemaking (NPRM).

The final rule overhauls the accountability framework for Title IV programs by replacing the former financial value transparency (FVT) rule and gainful employment (GE) debt-to-earnings (D/E) metric (GE/FVT) with a revised earnings premium measure through a new Student Tuition and Transparency System (STATS). The stated goal is to increase institutional accountability for graduate earnings, expand transparency regarding program costs and outcomes, and protect students from low-earning programs. Under this “do no harm” standard, a program passes if its graduates’ median earnings equal or exceed those of working adults aged 25-34 with only the next-lower credential level (a high school diploma for undergraduate programs or a bachelor’s degree for graduate programs).

The final rule represents a fundamental shift for higher education by implementing for the first time a congressionally mandated earnings-based metric that applies to all Title IV institutions and all of their Title IV eligible programs (GE and non-GE programs).

The final rule is effective as of July 1, 2027, (as compared to the July 1, 2026, effective date in the NPRM) with the option for early implementation of the revised reporting obligations under STATS, which are effective as of July 1, 2026. For institutions currently subject to the GE/FVT framework, early implementation avoids reporting data no longer required under the final rule.

Why It Matters

Staying Power

For the first time, the Department’s accountability rule would limit Direct Loan eligibility to Title IV eligible programs (GE and eligible non-GE) based on the new earnings premium measure. Enacted by Congress, this framework is unlike the previous FVT/GE regulation, which was accomplished solely through the agency rulemaking process. Instead, the new STATS framework, including the earnings premium, would require congressional action or a court order to amend. Therefore, the STATS framework has staying power that will likely preserve its core framework through future Department leadership changes, absent court or congressional action.

Precedential Breadth

By applying to all GE and eligible non-GE programs, the final rule dramatically expands the universe of programs subject to potential loss of federal Direct Loan access. This expansion has taken some public and private nonprofit institutions—which were not broadly subject to the prior GE rule—by surprise and will come with new transparency and reporting obligations for those institutions. While programs with no federal Direct Loan participation from 2021 to 2025, and certain programs with very small graduating cohorts or unreliable earnings data, are excluded, the Department estimates approximately 61,900 programs are covered, representing about 30 percent of all programs, 79 percent of Title IV students and 84 percent of annual Title IV disbursements. Approximately 3,302 programs could fail the earnings premium measure in the first year the calculation takes effect.

Transparency by Design

Information about whether programs pass or fail the earnings premium measure, including graduate earnings at the program level, will be made publicly available by the Department. This will not only impact Direct Loan eligibility for failing programs but likely invite close comparison among programs. Even passing programs with earnings close to the failing threshold will invite scrutiny. In addition, the Department has already indicated in recent staff-level accrediting agency re-recognition reviews that it will expect accrediting agencies to consider low-earnings outcomes for accredited institutions. That pressure will only increase as the Department moves toward finalizing new recognition standards that will formally require all institutions to achieve stated student outcomes, including outcomes on the STATS measure.

Delay Does Not Change Timeline and Creates New Risks

The final rule represents one of the most significant regulatory developments in federal accountability for higher education in decades. While the general effective date of July 1, 2027, provides some runway for preparation, it is still anticipated that the first failing program rates will be released in 2027 with the first loss of Direct Loan eligibility occurring in 2028, as well as attendant accountability and reputational impacts. If they have not done so already, institutions should begin program-level assessments immediately and develop compliance strategies well in advance of the reporting and accountability deadlines.

As noted, the Department has allowed for early implementation of the STATS reporting requirements. Institutions subject to the current GE/FVT regulations can simply not report by October 1, 2026, those reporting requirements eliminated in STATS and be considered to have early implemented. Failure to early implement may expose institutions subject to the GE/FVT regulation to some risk that the Department could issue a first set of GE rates—which carries regulatory consequences under the Title IV financial responsibility rule’s mandatory triggers and could lead to a letter of credit requirement if the institution received at least 50 percent of its Title IV program funds in its most recently completed fiscal year from GE programs that are failing.

Background

The final rule sets forth regulations that address the statutory changes made by the Working Families Tax Cut Act and harmonizes those regulations with requirements for programs that are required to lead to gainful employment (GE programs). The Department conducted the second portion of the AHEAD negotiated rulemaking, focused on the STATS framework, over a one-week period of January 5 to January 9, 2026, which concluded with a consensus agreement. On April 20, 2026, the Secretary of Education published the NPRM. On July 1, 2026, the Department published the final rule. The final rule implements the Act’s mandate by establishing an earnings premium measure as the sole accountability standard, extending it to eligible non-GE programs (including degree programs at public and private nonprofit institutions) and creating a comprehensive set of institutional reporting, student warning and administrative capability requirements. To harmonize the regulations, the Department replaced the former GE framework’s D/E and discretionary earnings (DE) metrics with a new earnings-based accountability system. The Department’s prior GE rule only applied accountability metrics to GE programs—primarily nondegree certificate programs and all program types at proprietary institutions.

Summary of the Final Rule

Early Implementation

Institutions have an option to implement certain portions of Part 668 reporting early. The final rule eliminates several reporting items under the GE/FVT framework, and therefore early implementation is favorable for most institutions. Institutions that stop reporting those reporting items eliminated by the final rule will be treated by the Department as having early implemented.

Program Participation Agreement

Amendments to the Direct Loan program regulations at 34 C.F.R. Part 685.300 become effective August 31, 2026, incorporating the new STATS framework and obligations into the program participation agreement. The preamble to the final rule indicates that updates to the Application for Approval to Participate in Federal Student Aid Programs (E-App) will be made to reflect this change, as well as the new program reporting and update requirements that will now apply to both GE programs (all programs offered by proprietary institutions and less than two year programs at public and nonprofit institutions) and eligible non-GE programs (programs other than a GE program).

Earnings Premium Measure

The final rule establishes a program level earnings premium measure that ties Title IV eligibility to graduate earnings. A program passes if the median annual earnings of students who completed the program equal or exceed an earnings threshold published annually by the Secretary. A program fails if median earnings fall below that threshold. Median annual earnings are obtained from a federal agency with access to earnings data for working students who completed the program during the applicable cohort period, measured in the fourth tax year following completion. The Department uses IRS data and U.S. Census Bureau data to calculate the thresholds.

If the Census Bureau data is unavailable or deemed to be unreliable to calculate median earnings, the Department does not issue the measure for that program.

“Do No Harm” Earnings Threshold

The final rule uses different earnings thresholds depending on the degree level to set a benchmark for demonstrating that a program’s graduate earnings are no less than those of an individual with a lower credential.

Specifically for undergraduate programs, the threshold will be derived from Census Bureau data of the median earnings for working adults aged 25-34 with only a high school diploma (or recognized equivalent) who worked and were not enrolled in an eligible institution during the year of the associated measured earnings. The threshold will be based on data from the state in which the institution is located. If, during the award year the calculations are made, fewer than 50 percent of the students enrolled in the institution are from the state where the institution is located, a national average will be used.

For graduate programs, the threshold will be derived from Census Bureau data of the median earnings of working adults aged 25-34 with only a baccalaureate degree who worked and were not enrolled in an eligible institution during the year of the associated measured earnings. The median earnings will be based on:

1. The lowest of the median earnings of working adults:
   1. In the state in which the institution is located;
   2. In the same field of study under the two-digit or four-digit CIP code, as such data is available and statistically reliable, in the state in which the institution is located; or
   3. Nationally in the same field of study under the two-digit or four-digit CIP code, as such data is available and statistically reliable; or
2. If fewer than 50 percent of the students enrolled in the institution during the award year in which the calculations are made are from the state where the institution is located, the lowest of the median earnings of working adults:
   1. Nationally; or
   2. Nationally in the same field of study under the two-digit or four-digit CIP code, as such data is available and statistically reliable.

Graduate Program Changes in Final Rule

In the NPRM, the Department had proposed that for graduate programs at majority in-state-serving institutions in fields where American Community Survey data is insufficient to calculate the same-state, same-field threshold, no earnings premium would be calculated. In the final rule, the Department changed this. In such situations, the earnings threshold will be $1. This change should exempt those programs from pass/fail consequences while still permitting the metric, including the earnings of program graduates, to be reported. The Department estimates that about 2,650 graduate programs (including roughly 300 programs in U.S. territories where census data is unavailable) will be exempt based on this change.

Cohort Aggregation

The cohort period is based on the completers from the fourth award year prior to the year for which the most recent data is available from the federal agency with earnings data at the time the earnings premium measure is calculated. For example, the first earnings premium test will be calculated in early 2027, prior to the deadline for submission of 2026 income tax returns, so the most recent year for which income data is available will be 2025. Since earnings are measured four years after program completion, the earnings of graduates from the 2021 cohort would be evaluated using 2025 earnings data. The Secretary will use a single-year cohort period to calculate the measure for a program when the number of students (after exclusions identified in Part 668.403(c)) in the single-year cohort period is 30 or more. The Secretary will sequentially expand the cohort period when the number of students completing the program in the single-year cohort period is fewer than 30 by first adding prior year data using the same six-digit CIP code and second, if necessary, by expanding to all programs within the same four-digit CIP code and credential level until a cohort of 30 is reached.

Program Coverage

The accountability framework applies to both GE programs and eligible non-GE programs offered by eligible institutions. It does not apply to programs at institutions that enroll only individuals with a documented, specific learning disability or autism as defined in 34 C.F.R. § 300.8. The final rule also removes prior exclusions for institutions in U.S. territories and freely associated states and for institutions with no groups of substantially similar programs that produced at least 30 completers in four award years.

Process for Obtaining Earnings of Program Completers Data and Calculating the Earnings Premium Measure

By October 1 of each year, the institution is required to report certain student enrollment data. The Secretary then uses this data to compile lists of students who completed each program during the cohort period. The list excludes certain students. Institutions have 60 days to correct the information. The Secretary then uses this completer data to obtain earnings data from the IRS.

For each list submitted to the IRS, the agency returns to the Secretary the median annual earnings of the students on the list who are working and whom the IRS has matched to earnings data, in aggregate and not in individual form.

The median earnings for program completers is then compared to the median earnings threshold for working adults in the same state or nationally, as described above.

Low-Earning Outcome Programs and Consequences

A GE or eligible non-GE program that fails the earnings premium measure in two out of any three consecutive award years becomes a “low-earning outcome program.” The consequences are significant:

Loss of Direct Loan Eligibility

An institution may not disburse Direct Loan funds to students enrolled in a low-earning outcome program. The ineligibility period is at least two years; the Department has noted the practical period may be indefinite because a program cannot reestablish eligibility until it passes for at least two years.

Orderly Closure

A program that fails the earnings premium test but has not yet been designated as low-earning may retain Direct Loan participation during an orderly closure for the lesser of three years or the program’s full-time normal duration—if the Secretary finds it in students’ best interests. Within 120 days of the failing determination, the institution must amend its program participation agreement to agree to:

1. Cease accepting new enrollments on or after the date of the agreement;
2. Engage in an orderly closure of the program in which the institution provides an opportunity for enrolled individuals to complete their program regardless of their academic progress at the time of closure;
3. Inform the institution’s state authorizing agency and accrediting agency and meet any program discontinuation or closure requirements of those agencies;
4. Acknowledge that the program has been voluntarily discontinued and subject to the two-year limitation on reestablishment of the program;
5. Maintain the program under a warning status and provide warning notice to students;
6. Provide to students the academic and financial options to continue their education in another program to which the student’s academic credit would transfer that is not a failing program at the same or another institution; and
7. Agree not to restart the same program or to start a program that shares the same four-digit CIP code for at least two award years following the completion of the orderly closure.

An institution may not add the addendum in cases where the program or the institution based upon the program’s compliance is subject to a probation or equivalent action by a recognized accrediting agency or state regulatory agency (including licensing boards), or where the institution is subject to heightened cash monitoring. This is one mechanism for institutions to avoid an administrative capability determination, as discussed below.

Voluntary Opt-Out

After a first failure, institutions may voluntarily opt out of Direct Loan borrowing for a minimum of five years to avoid certain administrative capability consequences.

Program Termination Procedures

In the final rule, the Department eliminated the requirement that it use the Subpart G process for program termination actions and has preserved its discretion to use “any available mechanism” to end program eligibility, including a revocation action under Part 668.13 or simply declining to add a low-earning program onto an institution’s program list on its eligibility and certification report at recertification.

Appeals Process

The appeals process changed from the NPRM to the final rule. The Department removed the appeals process from the Subpart G process into a Subpart S process meant to expedite appeals. The Department also made clear in the final rule preamble that it will not consider alternate earnings data as part of the appeals process. Institutions may appeal within 30 days of receipt of a low-earning outcome determination. An institution may only appeal on the basis of an error in the Secretary’s calculation of the program’s earnings premium measure under Part 668.403, including only:

1. The individuals that are included in the list of completers provided to the federal agency with earnings data under Part 668.404;
2. The determination of the appropriate earnings threshold under the definition of earnings threshold in Part 668.2;
3. The comparison of the median earnings determined by the federal agency with earnings data and the earnings threshold for the program; and
4. Such other bases for appeal determined by the Secretary.

An institution that timely submits an appeal is not subject to any consequences during the pendency of the appeal.

Student Warning Requirements

Institutions must warn enrolled and prospective students when the Department notifies them that a program could become Direct Loan-ineligible based on the next calculated measure. The warning must state that the program has not passed Department standards based on reported graduate earnings and could lose Direct Loan access. Where applicable, it must also explain potential loss of other Title IV funds. It must include information to access the Department’s program information website, student acknowledgement language and Pell lifetime eligibility information for Pell-eligible students.

Enrolled students must receive warnings within 30 days after the notice of determination. Prospective students seeking Title IV assistance may not enroll, complete registration, make a financial commitment or receive a Title IV disbursement until acknowledging the warning.

The final rule also expanded required warnings where an institution has failed the administrative capability requirement discussed below in at least one of three years. In such case, the student warnings must also state that students enrolled in low-earning programs could lose access to all Title IV aid (including but not limited to Pell Grants).

Administrative Capability Requirements

Institutions must demonstrate that at least half of Title IV recipients and at least half of total Title IV funds are not from low-earning outcome programs. If an institution fails to meet this requirement in two out of any three consecutive award years, it is placed on provisional certification status and its low-earning outcome programs do not qualify for Title IV funds. Exceptions exist for institutions that do not participate in the Direct Loan program and have not participated for the five most recently completed award years, and for programs where the institution agrees not to permit Direct Loan borrowing for at least five years.

Delayed Implementation for Tipped Occupations

If a program prepares students for an occupation qualifying for the tip-income deduction and at least 50 percent of individuals in the occupation receive tips, the program will not be considered to have passed or failed for any award year in which the Department evaluates earnings data from tax year 2025 or prior. The final rule identifies 20 programs (identified by six-digit CIP code) where 50 percent or more of workers customarily receive tipped income. See Table 5.22 from the final rule below. However, the earnings data and the threshold that would have been used are still made public. This creates at least a one-year delay for affected programs; small programs needing cohort aggregation may have up to four years of informational-only metrics before a binding determination is made.

Implementation Timeline

Institutions should note the following key dates:

Date/Milestone	Event
July 4, 2025	Working Families Tax Cuts Act enacted.
July 1, 2026	Final rule published in the Federal Register.
July 1, 2026	Certain Part 668 reporting provisions designated for early implementation become available; failure to early implement (before October 1) may have risks.
August 31, 2026	Amendment of 685.102 Direct Loan definition to add GE and non-GE programs and 685.300 PPA amendment requiring compliance with the Working Families Tax Cut Act and final rule as a condition of continued Direct Loan eligibility (referred to as instructions 13 and 14 in the final rule) become effective.
2027	Department expects to begin implementation calculations with 2025 earnings data for 2020-21 completers; affected tipped-occupation programs using 2025 or prior earnings data are informational only.
July 1, 2027	Final rule effective date; first official results published after this date; single failure triggers required student warnings.
October 1 following effective date	Institutions must report required information for the two most recently completed award years; for later award years, the October 1 following the end of the award year unless the Secretary sets different dates.
Each year after calculation	Department sends notice of determination; students must be warned within 30 days where applicable; institutions have 30 days to appeal low-earning determinations.
Award year beginning July 2028	First sanctions period expected to go into effect (subject to the two-out-of-three failure requirement, appeals, orderly closure provisions and tipped-program delay).

Conclusion 

The final rule is grounded in statute and thus has staying power. It also represents a heightened expectation for Title IV eligible programs to demonstrate a return for borrowers and taxpayers. While we expect potential legal challenges by some institutional groups directly harmed by the final rule, the legal avenues are narrow given its statutory grounding. A delayed effective date of July 1, 2027, should not prevent institutions from understanding the potential impact of the final rule on their programs, assessing whether programs need to be strengthened, and preparing for an increase in public and accreditor scrutiny on student outcomes, including the earnings premium test.

About Duane Morris

Duane Morris’ Higher Education Group regularly advises colleges, universities and other educational institutions on regulatory compliance, federal student aid matters and the full range of legal issues facing the higher education sector. The group has extensive experience counseling institutions on Department of Education regulations, Title IV program participation and the evolving landscape of accountability and transparency requirements.

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If you have any questions about this Alert, please contact Anthony J. Guida Jr., Edward Cramp, Katherine D. Brodie, Kristina Gill, John M. Simpson, any of the attorneys in our Higher Education Group or the attorney in the firm with whom you are regularly in contact.

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