Trump's Student Loan Rule Could Cut Funding for Degrees Whose Graduates Earn Less Than High School Dropouts

College programmes whose graduates earn no more than working adults with only a high school diploma could lose access to federal student loans under a Trump administration rule, although no programme will lose access before 2028.

The Department of Education announced the final rule on 29 June 2026 and published it in the Federal Register on 1 July, applying one earnings-accountability framework to undergraduate and graduate programmes at public, private non-profit and for-profit institutions.

Undergraduate programmes must show their graduates out-earn working adults whose highest credential is a high school diploma or equivalent, while graduate programmes must beat workers with a bachelor's degree.

A programme loses eligibility for federal Direct Loans only after failing the earnings test in two of three consecutive years, and the first calculations are not expected until early 2027.

How the Test Works

The comparison is built on two data sources. The department compares the median annual earnings of a programme's completers four years after they finish with a benchmark based on working adults aged 25 to 34, according to the final rule. The programme earnings figure comes from federal tax data, while the benchmark is calculated using Census Bureau data.

The benchmark varies by level. Undergraduate programmes are generally compared with workers holding only a high school diploma, using state or national figures depending on where an institution's students come from.

Graduate programmes are compared with bachelor's degree holders, with the department using the lowest applicable figure among state-level, state same-field and national same-field earnings in specified circumstances. The regulation implements provisions of the tax and spending law Trump signed on 4 July 2025.

A programme that fails twice in three years loses access to Direct Loans, though an orderly teach-out mechanism can let some currently enrolled students continue receiving aid. Institutions must warn current and prospective students when a programme is at risk.

If low-earning programmes account for at least half of an institution's federal aid recipients or aid volume, and the institution repeatedly fails a related administrative-capability test, those programmes can lose broader federal aid eligibility, including Pell Grants.

The timetable is long. The first calculations, primarily using 2025 earnings for students who completed in the 2021 award year, are expected in early 2027, with institutions given an opportunity to review and challenge them before public release, and a second round follows in early 2028.

The earliest a programme could lose loan access is the 2028–29 academic year, so students enrolling this autumn will not immediately lose federal loans, although their programmes could be affected by later determinations.

The administration frames it as a question of value for taxpayers. 'If a program that a student enrolls in is not actually leaving them better off than say a typical high school graduate four years after they leave college, then the federal government is no longer going to subsidize that program,' Under Secretary of Education Nicholas Kent told WVVA.

Which Programmes Are Exposed

Undergraduate certificate programmes appear particularly exposed. Department estimates discussed during rulemaking put their projected failure rate at about 29 per cent, against roughly 1 per cent of bachelor's programmes and about 4 per cent of graduate certificate and master's programmes. Those are projections based on available data rather than results under the final rule.

Older research shows how wide the gap can be in some fields. A 2022 Century Foundation study, using earlier federal data expressed in 2020 dollars, found cosmetology graduates earning about £12,240 ($16,600) a year three years after completing their programmes, around £6,340 ($8,600) less than workers with only a high school diploma, while carrying about £7,520 ($10,200) in student debt.

That study used a three-year measure under an earlier framework, whereas the new rule looks at earnings in the fourth tax year after completion.

Degree programmes are also in view. Fields including social work, counselling, education, religious studies and some arts and humanities programmes are among those that critics and department analyses have identified as potentially vulnerable, and the rulemaking analysis discussed a projected failure rate of around 64 per cent for master's programmes in mental and social health services.

The Carve-Outs and the Criticism

The final version is softer in places than the draft. After reviewing nearly 10,000 public comments, the department exempted institutions that exclusively serve students with specific learning disabilities or autism spectrum disorder.

Programmes preparing students for occupations where at least half of workers receive tips, such as cosmetology, barbering and massage therapy, get at least a one-year delay so that earnings data can reflect the no tax on tips policy beginning with the 2026 tax year.

During that delay, they are not designated as passing or failing, although their earnings information can still be published.

Critics argue that earnings are an incomplete measure of worth. In their view, a test based on median pay four years after completion favours programmes leading to higher-paid occupations and disadvantages fields such as counselling, social work and early years education, where wages can be constrained by public-sector and other funding structures.

The department sees the same data differently. It argues that programmes whose graduates are no better off financially than comparable high school graduates should not be underwritten by federal taxpayers.

Transparency arrives before the penalties do. Institutions must report programme-level data, including tuition, fees, grants and private borrowing, with the first submission due on 1 October 2026.

The reporting is intended to feed a public information system giving prospective students more data on programme costs and earnings before the first potential loss of Direct Loan eligibility.

For the first time, public universities and private career schools will face the same federal earnings-accountability framework, putting graduates' pay at the centre of whether programmes keep access to federal loans.