EDITORS' CORNER
Key Takeaways
- The U.S. Department of Education proposed a rule to hold colleges accountable for graduates' earnings, introducing an 'earnings test' to ensure graduates earn more than those without a degree.
- Programs failing to meet the earnings threshold, with bachelor’s graduates earning less than high school graduates, would lose eligibility for federal student loans.
- The proposal aims to address rising student debt, emphasizing that taxpayer subsidies should only support programs that yield better outcomes for graduates.
The U.S. Department of Education proposed a new rule on Friday to hold colleges accountable for programs that leave graduates with low earnings.
The proposal builds on the existing Gainful Employment rule by introducing a broader “earnings test” that would require programs to show that their graduates earn more than comparable workers without that degree, according to a news release from the department.
Programs will “no longer be eligible for federal student loans” if the average graduate of a bachelor’s program earns no more than a high school graduate.
Graduate programs would also have to ensure their graduates earn more than the average bachelor’s degree holder.
The department will review public comments on the proposed rule submitted by May 20.
“As the federal student loan portfolio approaches $1.7 trillion and more students are left financially worse off than if they had never attended college, now is the time for a hard reset in higher education,” the release states.
Under Secretary of Education Nicholas Kent called the new rule “common sense” in a statement included in the news release.
“[I]f postsecondary education programs do not leave graduates better off, taxpayers should not subsidize them,” Kent said.
“This consensus-backed framework will drive meaningful change in postsecondary education, ending years of regulatory whiplash and addressing student debt that has left too many students worse off,” he said.
American Enterprise Institute scholars have previously advocated for this idea in articles published by the Center on Opportunity and Social Mobility.
“Colleges that rely on federal student loans should be subject to a ‘debt-to-earnings’ test that would build on those in the financial value transparency rule and gainful employment rule,” Beth Akers and Preston Cooper wrote in a proposal published in October 2024.
In a March 2024 op-ed, education policy experts Frederick Hess and Michael McShane suggested that universities “track student labor market outcomes and calculate graduates’ earnings.”
“Such a system rewards institutions that build programs and approach staffing with a focus on outcomes and ROI—a development that, in turn, should have the happy effect of squeezing out the ideological stylings that have proliferated at institutions where students or faculty have too much idle time and too little focus,” the scholars wrote.
However, Career Education Colleges and Universities, a group representing for-profit schools, stated that while “the proposal is a dramatic improvement over the current Gainful Employment rule,” the “accountability formula remains unresolved.”
CEO Jason Altmire listed “regional wage differences, lack of differentiation of part-time versus full-time work, unreported tipped income, gender wage disparities, and the age range of the comparison group” as issues that remain to be addressed.
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