Julia Chirkova
New regulations enacted by the Trump administration will prohibit students from accessing federal loans for degrees and certifications projected to yield low incomes upon graduation. This policy change, finalized by the Department of Education, aims to curb student loan defaults and ensure that higher education investments lead to economic advancement. The rules establish a "payback-or-no-pay" benchmark, where programs must demonstrate that graduates will earn more than individuals with only a high school diploma.
The policy, which took effect this month, represents a significant shift in federal student aid policy, focusing on the financial return on investment for higher education. While the intention is to protect students from accumulating debt for degrees that do not translate into higher earnings, the rule has ignited debate about the broader purpose of higher education and whether its value should be solely measured by post-graduation income.
Background and Rationale for the New Regulations
The impetus for these new rules stems from a national crisis in student loan defaults. Millions of borrowers have struggled to repay their loans, leading to significant financial hardship and contributing to broader economic concerns. The Department of Education’s stated goal is to create a more accountable system where educational institutions are incentivized to offer programs that lead to gainful employment.
"For the first time in a very long time, institutions and college leaders are going to be held accountable," stated Michael Itzkowitz, president of the education research organization HEA Group. "They are going to start looking and paying more attention to economic outcomes than they ever have before."
These regulations build upon previous attempts to address program accountability. Similar rules were introduced under the Biden administration, targeting certificate programs at public and private nonprofit schools, and all degrees and certificates at for-profit colleges. However, those rules were not in place long enough for institutions to face penalties. The current iteration expands the scope and enforcement mechanisms.
Key Provisions of the Earnings Test
The core of the new policy lies in a federal earnings test. To remain eligible for federal student aid, programs must meet specific income thresholds for their graduates.
- Bachelor’s, Associate’s, and Undergraduate Certificates: Graduates’ median income four years after completion must exceed the median earnings of individuals who hold only a high school diploma. This benchmark is determined using Internal Revenue Service data and will be compared against state-level median earnings or national figures if an institution has a high rate of out-of-state enrollment. In California, for instance, this benchmark is approximately $36,000 annually, roughly equivalent to full-time earnings at the state’s minimum wage.
- Master’s and Doctoral Programs: Graduates from these advanced degree programs must earn more than the median earnings of a 25- to 34-year-old bachelor’s degree graduate in their specific field, or across all bachelor’s degrees, whichever is lower.
Diane Cheng, vice president of policy at the Institute for Higher Education Policy, emphasized the fundamental expectation behind these benchmarks: "It’s kind of a baseline expectation for students that no matter what type of program they pursue, they should be better off because of the investment that they’ve made."
Programs Most Likely to Be Affected
The Department of Education’s estimates indicate that certain program areas are at a higher risk of failing the new earnings test, potentially leading to ineligibility for federal student loans.
- Arts and Humanities: Degrees in music, drama, and fine arts are expected to face high failure rates due to projected low median incomes for graduates.
- Mental and Social Health Fields: While master’s programs in these fields are flagged for potential failure nationwide, California’s mental and social health master’s programs appear to fare better. Graduates in California tend to earn a median of $70,485, compared to a national median of $60,175. At the undergraduate level, these programs are anticipated to have very low failure rates.
- Undergraduate Certificates: Programs leading to undergraduate certificates, particularly in fields like cosmetology, massage therapy, and film, are projected to have the highest percentage of failures.
For-Profit Institutions Face Disproportionate Impact
For-profit colleges, which have historically been criticized for graduating students with substantial debt and limited career prospects, are expected to be the hardest hit by these new regulations. The Department of Education estimates that approximately 33% of programs at for-profit schools may fail the earnings test, a stark contrast to the estimated 3% of programs at public and nonprofit institutions.
"The vast majority of bachelor’s and advanced degree programs at public and nonprofit colleges and universities are expected to be safe," the report notes, with only a small fraction anticipated to fall short of the new benchmark.
Specific Sectors Under Scrutiny
The cosmetology and personal grooming services sector stands out as particularly vulnerable. The Department of Education anticipates that over 90% of undergraduate certificate programs in this area could fail the earnings test, with typical annual incomes for graduates falling below $28,000.
The beauty industry has raised concerns, arguing that reported incomes do not fully reflect the earnings of their graduates. They contend that many work part-time and receive significant income from tips, which may be underreported to avoid taxes. In response to these concerns, the Department of Education has announced a delay in the implementation of the rule for programs where a majority of workers receive tips. This delay is intended to allow for evaluation under the new "No Tax on Tips" policy, a Trump-era initiative.
John Russell, who leads the American Association of Career Schools, a trade group for cosmetology and barbering schools, warned of potential workforce shortages if these programs are disqualified. He projected a deficit of approximately 100,000 new entrants into the field annually if reported earnings do not significantly increase or if the rule is not adjusted to account for the part-time nature of much of the beauty workforce.
Debate Over the Mission of Higher Education
The new federal rule has amplified a long-standing debate about the fundamental purpose of higher education. While proponents argue that educational investments should yield tangible economic benefits, critics express concern that this approach devalues fields that contribute to society in ways not directly measured by immediate income.
"We need social workers," argued Ted Mitchell, president of the American Council on Education. "Whether it’s the fentanyl epidemic or homelessness in L.A., we need people who can work on the street with people who need it the most." Mitchell suggested that while accountability is necessary, federal and state policies may need to explore alternative support mechanisms for students in programs that might fail the earnings test.
Concerns have also been voiced by programs in religious studies. Gregory Baylor, senior counsel with the Alliance Defending Freedom, stated that "society benefits from people choosing to serve the world through religious vocation." He added, "The government shouldn’t punish people who pursue socially valuable callings just because in its judgment they don’t earn enough money."
Institutional Responses and Future Implications
Educational institutions are beginning to assess the potential impact of these regulations and devise strategies to adapt. At the California Institute of the Arts (CalArts), administrators are concerned about the four-year post-graduation earnings benchmark, particularly for students who pursue independent contracting roles.
"A lot of them are essentially independent contractors, so it’s a slightly different trajectory than someone who goes to an engineering program," said Michael Bryant, interim provost at CalArts. "It takes them a little bit longer to get themselves established."
CalArts is implementing measures to bolster its programs’ economic viability, including expanding career fairs and strengthening industry partnerships. The institution is also considering using its own funds to support students in programs that might face funding cuts.
Steven Lam, dean at CalArts, expressed apprehension that federal policy could negatively impact the cultural production ecosystem in Southern California. Jonathan Gienapp, an associate professor of history and law at Stanford, echoed the sentiment that educational value extends beyond immediate financial returns, especially in fields like the humanities.
The long-term implications of these new regulations remain to be seen. While they aim to protect students from burdensome debt, they also raise questions about the future of certain academic disciplines and the government’s role in defining the value of higher education. The success of the policy will depend on its implementation, the responsiveness of educational institutions, and the ongoing dialogue about the multifaceted contributions of various fields of study to society. The Department of Education is expected to release further data and guidance as institutions prepare to comply with the new federal standards.
