CAI Policy Insights: Earnings Potential Drives Winter Rulemaking Consensus
Programs must pass potential earnings test to qualify for federal student aid eligibility
Welcome to CAI Policy Insights, a monthly policy digest covering the latest legal and policy updates impacting online and hybrid learning and the use of educational technologies. By staying up to date on news and emerging controversies in these areas, we believe faculty, administrators, learning experience designers, and academic leaders can all make more informed decisions regarding program development, technology integrations, student engagement and assessment strategies, and more. Topic-by-topic breakdowns of key regulatory issues can also be found on the Online Teaching Compliance Page.
Summary and Insights
This edition of CAI Policy Insights picks up right where December’s edition left off, covering the dramatic conclusion to the work of the U.S. Department of Education’s Accountability in Higher Education and Access through Demand-driven Workforce Pell (AHEAD) rulemaking committee. The AHEAD committee, in its second and final session, has again reached consensus on draft text for soon-to-be proposed regulatory amendments. Anticipated regulatory changes tied these efforts—with more steps still to come before new rules become final and effective—will drastically impact program eligibility for federal student aid programs going forward.
In short, all Title IV programs will soon be closely monitored for their return on investment as measured by cohort earnings relative to the median income of a general population of working adults, aged 25-34, who have not reached the same level of education. The earnings of graduate and professional program completers, and only these programs, can also be compared with median earnings of working adults matching the profession aligned with the program if doing so would result in more favorable outcomes. However, these “do no harm” comparisons will now be calculated without regard to the debt taken on for completing the program, and institutions will have fewer student-level data points to submit as part of the associated annual reporting process. Programs that fail to produce earnings that meet or exceed those in their comparison group for 2 out of 3 consecutive years will lose eligibility for Direct Loan programs.
The U.S. Department of Education (ED) will not be following its standard practice of publishing a final rule by Nov. 1 to have it take effect on July 1 of the following year, as is mandated by the Higher Education Act for rulemaking of this type. Instead, ED has cited an implied waiver of this notice period granted by the U.S. Congress when it passed the One Big Beautiful Bill Act (OBBBA) and established a July 1, 2026 effective date for many of the very same provisions ED has been crafting regulations for through the work of this and other committees since the act was signed into law a little over six months ago. This means there will be very little time to work on compliance efforts for these upcoming rules, which have not yet been officially proposed but are expected to mirror that same July 1, 2026 effective date wherever possible.
While these new requirements will apply regardless of a program’s modality, calculations involving online programs are likely to be more complex given the potential scale of these programs and physical location of students, which can influence whether national or state income thresholds are applied and may impact the availability of voluntary teach-out options for low-earning programs that are at risk of losing aid eligibility. Additionally, institutions may wish to evaluate earnings differences based on the modality of programs offered both through online and in-person formats.
Feature Policy Update: From One Big Beautiful Bill to One Big Beautiful Accountability Framework
Last month’s edition of CAI Policy Insights covered the fall 2025 rulemaking sessions, focusing on student loan repayment programs and the new Workforce Pell program. The second and final session of the AHEAD rulemaking committee has now concluded with consensus language, providing a nearly complete picture of OBBBA’s upcoming implementing regulations, once the department proposes these rules over a series of three notices expected to be published between now and early spring. Once again, final rules stemming from these proposals are expected to take effect on July 1, 2026 despite what will be a very brief notice window from the date those final rules are published.
Overview
The AHEAD committee’s charge in its second week of deliberations was to create practical rules that harmonize the new OBBBA earnings-based accountability framework with existing regulations—namely, the Gainful Employment and Financial Value Transparency frameworks. At the outset, ED representatives expressed the importance of developing a uniform set of metrics for accountability that apply to all Title IV-eligible programs, regardless of the unique characteristics of the program or the institution’s status as a public, nonprofit, or for-profit entity. This represents a departure from past and existing frameworks, where certain types of institutions or programs (i.e., all Title IV programs offered by proprietary institutions and all non-degree Title IV programs offered by others) have been subject to additional scrutiny and penalties for failing applicable earnings tests. The AHEAD committee succeeded in developing this more universal framework; though, Workforce Pell programs will still be evaluated under a somewhat different standard, leveraging the value-added earnings test developed by this same committee during its December session.
While many of the core reporting categories included in the Financial Value Transparency framework have carried over into what ED has rebranded as the Student Tuition and Transparency System, a number of student-level categories were also eliminated, easing administrative burden for institutions. The debt-to-earnings tests associated with Financial Value Transparency and Gainful Employment have also been eliminated. The newly developed universal earnings premium test largely mirrors the earnings premium tests used under Financial Value Transparency and Gainful Employment and encompasses all statutorily required metrics under OBBBA.
The New Earnings Premium
The Department of Education’s new earnings premium test will still be used to determine whether a program is a low-earning-outcome program relative to the median earnings of a comparison group (and without regard to debt associated with the program). Penalties will also be consistent for Title IV programs at all institutions that fail the earnings test: required notices to students after failing 1 year and the loss of Direct Loan eligibility after failing in 2 out of 3 consecutive years. While a detailed summary is provided below, ED shared a variety of calculation scenarios and accompanying flow-charts with negotiators that may be helpful to those hoping for a more visual representation.
“Earnings” will include “wages, income as reported to the Internal Revenue Services, and other earned income, including from self-employment” per proposed amendments to the general definitions section under 34 CFR § 668.2. Cohorts that will form comparison groups with working adults are based on 6-digit CIP code and credential level and established at approximately 4 years after program completion wherever this would result in at least 30 completers. In cases where it does not, there are cohort expansion protocols, which first combine prior award year data up to an additional four years before potentially combining data from 4-digit and then, if necessary, 2-digit CIP code families until ED has a cohort that equals or exceeds 30 students.
Once cohorts are established, the earnings of that group are then compared with a corresponding group of working adults, aged 25-34, to calculate the earnings premium measure. For undergraduate credential levels (i.e., undergraduate certificate or diploma, associate degree, bachelor’s degree, and post-baccalaureate certificate), program completer cohorts will be compared to working adults with only a high school diploma or recognized equivalent in the institution’s home state. However, if the institution had enrolled 50 percent or more of its students from other states during the comparison award year, then national earning data are used instead of that of the state. (Note: This is determined based on the institution’s enrollment as opposed to the individual program’s enrollment.)
Earnings from graduate credential levels (i.e., master’s degree, doctoral degree, first-professional degree such as an M.D., and graduate certificate, including a postgraduate certificate) face a similar earnings premium test but one with several key distinctions as well:
- While graduate credential level earnings will still be compared with populations of working adults, aged 25-34, these groups of working adults will have earned a baccalaureate degree (and have not earned a graduate-level credential) rather than having earned only a high school diploma.
- The median earnings of graduate credential completers can be compared to either that of working adults in the same field of study (determined by 2-digit or 4-digit CIP code, “as such data is available and statistically reliable”) or that of working adults without regard to profession or field of study, whichever is lower.
- While the group earnings data will again shift from an in-state to a national comparison whenever there is less than 50 percent in-state enrollment at the institution during the comparison year, national data can always be considered even when that 50 percent in-state threshold is crossed if the national test (whether based on same-field earnings or not) would offer a lower median for comparison.
Regarding the potential application of median earnings tied to the same field of study, this will provide more breathing room for graduate-level credential programs. In particular, this policy should, at least in theory, help ensure programs that prepare students for work in certain “helping professions” like education, social services, and nursing will still be eligible for Direct Loans even if graduate earnings lag behind the state or national median despite the critical importance of these professions to society.
Once again, debt-to-earnings tests, which had previously provided an alternative method by which programs could be considered low-earning and, for Gainful Employment programs, at risk of losing Title IV eligibility, will no longer factor into program accountability tied to Direct Loan eligibility. This is a major change and one that was subject to some debate. Department of Education representatives noted that OBBBA’s statutory changes (e.g., eliminating Grad PLUS loans and capping federal borrowing) largely addressed the same underlying concerns with regard to student debt load and the impact on taxpayers more broadly. Data presented also showed a close overlap between programs failing debt-to-earnings and earnings premium tests, which led ED to the conclusion that debt-to-earnings provides little in terms of protections to students and taxpayers while significantly increasing burden.
Some negotiators were quick to point out that tests included private loans as well as federal loans, and the overlap may be less in practice with the removal of the debt-to-earnings measures. Despite these early objections, however, the committee did move forward with debt-to-earnings measures excluded, providing a far easier framework for both institutions and ED to administer in practice.
Estimated Impact, Consequences, and Appeals
Institutions can review impact estimates for all of their programs, which ED collected in spreadsheets and shared with the AHEAD committee prior to the first day of session 2. These materials are also available to the general public and can be found under the Session 2 – “Materials distributed by the Department Presession” section on ED’s negotiating rulemaking page. Several key patterns and observations, based on a data presentation from ED during the first day of the session, include the following:
- Approximately 6 percent of all existing academic programs—impacting approximately 5 percent of all Title IV students—will fail these new earnings premium tests.
- Despite the application of what will now be a universal standard, approximately 35 percent of for-profit programs are at risk of failing compared to 3.7 percent of public institution programs and 3.1 percent of nonprofit programs.
- Approximately 650,000 Title IV students attend a failing program, across all sectors, with 55 percent of those students attending a for-profit institution.
- In terms of credentials, undergraduate certificates are by far most at risk of failing these earning premium tests, with an approximately 29 percent failure rate, impacting approximately 31 percent of all undergraduate certificate students. Program classifications for culinary programs, English language and literature, computer science, and cosmetology fared particularly poorly—all having a close-to, if not exactly, 100 percent failure rate.
- While there is some variation across credential levels, Culinary Services, Cosmetology, Drama/Fine Arts, Religious Studies, and Alternative & Complementary Medicine have the highest projected fail rates. Notably, Mental and Social Health Services and Allied Professions programs are also at risk, with approximately 64 percent of current master’s degree programs expected to fail across all sectors.
After a program fails to meet or exceed the median earnings used for the applicable earnings premium test for 1 year, the institution must provide a number of disclosures and timely warnings to students (e.g., sharing ED’s earnings data with current and prospective students and providing direct disclosures, such as via email to current and prospective students, informing them that the program is at risk of losing eligibility). Once a program fails the earnings premium threshold in 2 out of 3 consecutive years, the program loses Direct Loan eligibility for a minimum of 2 years before the institution would be eligible to apply to have it reinstated. However, the impact extends past just that of the individual program. During this period, an institution is also prohibited from updating its list of Direct Loan eligible programs to include a program sharing the same 4-digit CIP code and any overlapping Standard Occupational Classification codes as one that was subject to the loss of eligibility.
For programs that do fail their applicable earnings premium test, a limited appeals process is provided as a first-step administrative remedy. ED felt strongly that the appeal provisions passed by Congress clearly indicated the appeals process must be limited only to perceived calculation errors and could not open the door to institutions offering earnings data from other sources or using other methodologies, such as a more region-by-region comparison as opposed to state-wide or national comparisons. This was another area with considerable debate among the negotiators, with some arguing the appeals process would serve no purpose if they only provided an extra opportunity to check ED’s math with those errors already being discoverable and fixable absent a dedicated appeals process. However, ED representatives maintained that their hands were tied as the language in the statute made clear that appeals need to be limited to only the programmatic median earrings determination itself: “An educational program shall not lose eligibility under this subsection unless the institution has had the opportunity to appeal the programmatic median earnings of students working and not enrolled determination . . ..” 139 STAT. 355(B)(5) (emphasis added).
Institutions will also have the opportunity to voluntarily close the at-risk program rather than have their currently enrolled students lose aid eligibility as they work towards completion. Institutions would need to amend their Program Participation Agreement and agree to a number of procedure requirements, such as establishing a specific closure date, ceasing new student enrollments, providing warnings to existing students, and meeting teach-out requirements to help ensure current students can complete the program before the deadline or enroll at a different offering institution.
Other Updates
To accommodate concerns raised by some of the negotiators in providing a pathway for institutions to voluntarily teach out programs at risk of losing aid eligibility, ED included a new requirement that “at least half of the institution’s recipients of Title IV, HEA funds and at least half of the institution’s total Title IV, HEA funds are not from low-earning outcome programs,” as an update to administrative capability requirements under § 668.16(t). This raises the stakes for institutions where a high percentage of programs or student enrollments have been designated as low-earning outcome programs, as the loss of not just Direct Loan eligibility but now all Title IV eligibility would be applied at the institution rather than program level via this new 50 percent test.
Another addition worth monitoring is that institutions would now need to report all new programs to ED within 10 days of offering them—a rule that previously applied only to new Gainful Employment programs. While this involves just a reporting step and not an approval step, this will still add administrative burden for institutions, that will now need to revise program approval processes to ensure effective coordination in updating the institution’s Eligibility and Certification Approval Report whenever any new program has been added or substantially modified consistent with certification requirements under 34 CFR § 668.604.
Finally, ED has removed what had been a July 1, 2026 deadline to publish a new consumer protection website that institutions, in turn, would link out to from various webpages. ED has also made changes to the categories of information that would be disclosed on this website, by ED, once built. These include the following:
- The removal of debt-to-earnings as this metric is no longer tied to the updated accountability framework;
- The removal of postgraduation training and licensure information; and
- The addition of a “median length of calendar time (i.e., weeks, months, years)” program completion description for both full-time and less-than-full-time students.
Note, however, the burden to institutions in providing links to ED’s forthcoming consumer protection website was subject to some debate among negotiators as well and this may be an area where public comments could continue to influence resulting policy. Specifically, institutions may wish to comment on ways to narrow the list of possible websites where institutions will be asked to link out to ED’s forthcoming consumer protection website under the revised 34 CFR § 668.43(D)(2), which would currently be “any web page containing cost, financial aid, or admissions information about the program or institution.” While the starting list of websites was broader, including “academic” webpages as well, this requirement is still likely to result in the need to update several thousands of webpages across large, complex institutions. Some negotiators pushed for a lower-burden solution but ultimately agreed on the draft text to reach consensus.
Key Takeaways
The AHEAD Committee’s consensus proposal on the OBBBA accountability framework marks a major shift in how colleges and universities across the country—regardless of sector or modality—are held accountable for the financial outcomes of their programs. Institutions will now need to ensure all of their programs provide a sufficient return on investment in terms of graduate earnings four years post completion.
For online programs, institutions should be aware of how these programs impact the percentages of in-state versus out-of-state enrollments. Additionally, as earning data is applied to cohorts on the basis of shared 6-digit CIP codes (with possible cohort expansion into 4-digit and even 2-digit CIP code programs), institutions should pay attention to earnings differences across modalities when the same or similar programs are offered both as in-person and distance education options. ED does not appear to have directly addressed issues involving shared or similar CIP codes used for programs offered in multiple modalities and reported as distinct programs. This may be another area where it could be worth seeking clarification from ED as part of the upcoming public comment opportunity once ED has published its proposed rule.
Regardless, institutions may wish to review ED’s estimates for earnings premium outcomes for all of their Title IV programs, using the directions provided under the “Estimated Impact, Consequences, and Appeals” section, above, so they can begin making plans for programs expected to fail their earnings tests. Once again, approximately 6 percent of all programs currently offered are expected to fail these tests, impacting hundreds of thousands of students across the country who are now at risk of losing federal aid eligibility to complete these programs within the next couple of years.
Other Developments Worth Monitoring
Other major policy developments impacting digital learning are outlined briefly, below.
- ED Comment Request for State Authorization Location Determinations: On Jan. 13, 2026, ED announced it is interested in public comments regarding how institutions are making location determinations for state authorization purposes under 34 CFR 600.9(c)(2)(i) and how burden might be reduced. The deadline to submit comments is March 16, 2026. Instructions are shared in the link above.
- Public Domain Day 2026: On Jan. 1, 2026, all copyrighted works created in 1930 entered the public domain and can now be used freely without needing permission from the copyright holder. Popular works include Betty Boop, the Academy Award winning All Quiet on the Western Front, and the first four Nancy Drew books.
- Proposed H. R. 6718, Professional Student Degree Act: On Dec. 15, 2025, a bill was introduced in the U.S. House of Representatives to expand the definition of ”professional degree” as it appears in the Higher Education Act. This stems from concerns raised as part of the work of ED’s recent RISE Committee over ED’s inability to apply higher borrowing limits to certain programs due to existing statutory restrictions. Various nursing, education, social work, and public health programs, for example, could have expanded federal loan borrowing caps if this bill were to become law.
Past Editions
Looking for news that first broke in a prior month or perhaps for historical context of a story featured in this article? Links to past editions of CAI Policy Insights are provided below.
