New Trump admin rules tie federal student loans to how much money graduates earn
The Trump administration is overhauling the way millions of Americans pay for a higher education. On Monday, it finalized new rules for how the government determines the college programs that are eligible for federal student loans.
The new rules, which are set to be formalized Wednesday, will tie colleges and universities’ ability to access federal loans to how much money their students earn after they graduate.
“Under the new Student Tuition and Transparency System (STATS) and Earnings Accountability rule, undergraduate programs will be required to demonstrate that their graduates earn more than the typical high school diploma holder, and graduate programs will be required to demonstrate that their graduates earn more than the typical bachelor’s degree holder,” the Department of Education said in a statement.
Prove it
The Education Department says schools have three years to show at least a “modest” return on investment for their graduates. If they can’t do that, the department will terminate eligibility for Title IV of the Higher Education Act for what it determines are the school’s “low-earning outcome programs.”
That includes eligibility for the Pell grant, which is awarded based on students’ financial needs. Unlike a loan, it does not have to be paid back.
The Education Department says the goal is to combat the sky-high cost of higher education.
“The Trump administration is hitting the hard reset button on higher education and implementing common-sense reforms that will drive down the cost of higher education,” Under Secretary of Education Nicholas Kent said. “If a program cannot show that it leaves its graduates financially better off than if they had never enrolled, it should not be underwritten by federal taxpayers.”
The federal government will begin collecting earnings data this October, according to The Wall Street Journal. The department says 2027 will be the first year schools will have to meet the new earnings threshold.
Some exceptions
According to the Journal, the department says about 3,200 programs with approximately 690,000 students who rely on federal student loans are on track to fail the earnings test. That includes degree and certificate programs for things like ministry, cosmetology and massage therapy.
After public outcry, the Education Department made some revisions to its plan.
The department is delaying the new eligibility rules for at least one year for programs whose graduates earn a substantial portion of their income from tips. That will give the government time to assess how President Donald Trump’s “No Tax on Tips” policy will impact overall income.
There’s also a “parachute option” for schools that fail to meet the earnings threshold after the first year. Under that option, schools can choose to exit the federal student loan program but still remain eligible for Pell grants.
Kent said about 600 religious-affiliated programs will be able to maintain access to the Pell grant that way, according to the Journal.
Programs will also be able to keep their Title IV eligibility if they are not yet determined to be low-earning and the school and the Education Department “agree to amend the institution’s program participation agreement to prevent students from borrowing Direct Loans for the program for a period of at least five years.”
Plans already in motion
Some states are already moving to eliminate “low-earning” programs.
Indiana passed a law in March directing public colleges and universities to end all academic programs that produce “low-earning” graduates. That law takes effect Wednesday.
Students and faculty in Indiana have raised concerns over the law. One anthropology student at the University of Indiana Bloomington told the student newspaper the bill could pave the way for lawmakers to eliminate his entire department, according to Higher Ed Dive. That report also says a lecturer with the university’s Parks, Recreation, and the Outdoors program said state pay for seasonal workers at the Indiana Department of Natural Resources is “notoriously bad,” setting up his program to qualify as low earning.
New Hampshire, West Virginia and Nebraska have introduced similar bills that would eliminate state financial aid for “low-earning” programs.
Other major student loan changes
Also on Wednesday, several other major changes to federal student loans will take effect, under the One Big Beautiful Bill Act passed last year. Most notably, the Biden-era SAVE program is coming to an end.
SAVE, short for Saving on Valuable Education, determined how much borrowers must pay monthly based on their income and family size. In some cases, the payments could be as low as $0.
Those currently on the SAVE plan will have until October to re-enroll in a different repayment plan, or they’ll automatically be put into one.
Starting Wednesday, there will also be changes to the Parent PLUS program. Under the new rules, parents taking out their first PLUS loan for their child can borrow up to $20,000 a year per student, and up to $65,000 total, instead of borrowing however much they need to pay for college. For those enrolled in the program by June 30, the old rules will still apply — but only for three years or until the student finishes school.
Short-term, eight- to 15-week workforce training programs will also now be eligible for Pell grants for the first time.
Other changes include how Pell grants are calculated, new repayment plans, allowing schools to limit how much their students can borrow, lower caps on graduate loan borrowing, and new restrictions on who qualifies for Public Service Loan Forgiveness.
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Ella Rae Greene, Editor In Chief
