Trump’s new rule could cut off student loans for some degree programs

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Students enrolled in degree programs that lead to low-earning careers will lose access to federal student loans as early as the 2028-29 academic year under a final rule from the Department of Education.

The rule, finalized in June, implements a new "Do No Harm" earnings standard established under the One Big Beautiful Bill Act (OBBBA). The department's new "earnings accountability framework" restricts federal student loans to only those educational programs with graduates who meet certain earnings thresholds.

Degrees in the arts, social work, religious studies, music, and cosmetology are expected to be most affected. The biggest impact will likely be on for-profit institutions.

"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," Under Secretary of Education Nicholas Kent said in a statement.

To remain eligible for the federal Direct Loan program, undergraduate programs must demonstrate that their graduates earn more than working adults ages 25 to 34 who only have a high school diploma. Graduate programs, similarly, must demonstrate that their graduates earn more than workers with only undergraduate degrees.

The earnings test is calculated using the median earnings of degree holders four years after they complete a program. The calculation for 2027, for example, will use median incomes of students who completed a program in 2023.

For undergraduate programs, median incomes will be compared with those of working adults aged 25 to 34 who have only a high school diploma. Depending on a school's enrollment details, the incomes used will include either nationwide workers or those within the same state as the school.

Graduate programs will compare their students' median incomes with those of workers in the same 25-to-34 age range who only have a bachelor's degree.

While the earnings test will begin in 2027, the consequences are delayed for certain programs for workers who earn significant income from tips. That's so the test can include tipped income under the new tax deduction for tips and overtime, which took effect last year. Eligible programs include those for cosmetology, massage therapy, and other work that relies on tips.

The earliest a program could be affected is the 2028-29 financial aid award year. If a program fails the earnings test in both 2027 and 2028, it'll be designated as a "low-earning outcome program."

Once the program receives that designation, it will lose access to federal Direct Loans.

Programs that qualify for the delay because their graduates work predominantly in tipped positions will have extra time. The consequences of failing the earnings test will not apply until the test can use data from the 2026 tax year or later. However, the reported earnings information will still be available for students to view.

The new rule can also affect Pell Grant eligibility for students at schools that have low-earning outcome programs.

Higher education institutions will lose all of their Title IV aid eligibility, which includes Pell Grants, if more than half of their aid recipients are enrolled in low-earning outcome programs or if more than half of the school's Title IV funds are given to students enrolled in these programs.

Not all schools with low-earning outcome programs will automatically lose Pell Grant funding, though.

Schools will receive a warning from the Department of Education after the first year that a program fails the earnings test. After receiving that warning, the school will have the option to remove the program from Direct Loan participation for at least five years — which will protect the program from losing Pell Grant funding.

The school may also choose, after the first warning, to end the program and develop a "teach-out plan" for existing students. During this period of three years (whichever is shorter), the program will continue to have access to Title IV Pell Grants.

The department's January study found that just 6% of higher education programs would be affected. Of those, for-profit schools showed the biggest risk; over 35% of programs at for-profit schools were predicted to fail the earnings test.

Among program types, undergraduate certificates were the most at risk: 29% failed the earnings test. The most common low-earning undergrad certificate programs were culinary, entertainment and personal services (100% of programs), English language and literature (98.9%), computer and information sciences and support services (95.9%), and cosmetology and personal grooming (92.5%).

Only 1.2% of bachelor's programs and 4% of Master's programs were predicted to fail. The most common low-earning undergraduate degree programs were religious studies (53.3% of programs), graphic communications (17.7%), and film/video and photographic arts (12%). Among graduate degree programs, those that most frequently failed the earnings test were alternative and complementary medicine (98.1% of programs), religious studies (89.4%), and mental and social health services (64.3%).

Another analysis by the HEA Group predicted that only about 2% of associate and bachelor's degree programs were at risk of being labeled as low-earning outcome programs.

Since the final rule was announced earlier this year, reactions have been mixed.

On social media, many argued that the new earnings test could have detrimental effects on fields — such as social work and the fine arts — that have value beyond their median earning potential.

In response to a post and article by The New Republic on X this week stating that "Trump is banning students majoring in degrees that don't make enough money from taking out college loans," the Department of Education responded that it wasn't "banning" any program but "holding colleges accountable for leaving students worse off than if they never enrolled."

Others say that the framework is a good start, but doesn't go far enough to protect students from taking on massive amounts of debt for degrees and certificates that lead to low-paying jobs.

The Institute for Higher Education Policy said the policy "marks real progress toward a system that holds college programs accountable for their students' outcomes and gives students the information they need to choose wisely." But it also argues that the rule falls short without stronger warnings for students in at-risk programs and without incorporating cumulative student loan debt into institutions' reporting.

The Institute for College Access and Success, too, acknowledged the policy as "a meaningful step" while pushing back against the exceptions for Pell Grant funding and the delays for testing programs for tipped workers.

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