The federal rule that cuts off aid to degrees that do not pay off

Most federal higher education rules are unreadable. This one reduces to a single sentence: three years after finishing a career training program, its typical graduate should earn more than a typical worker of the same age who never went past high school. If a program’s graduates cannot clear that bar in two out of three consecutive years, the program loses access to federal student loans and Pell Grants, the money that keeps most of these schools alive.

It is called the gainful employment rule, and it may be the most consequential education policy most people have never heard of.

How the gainful employment rule works

The Education Department pulls graduates’ actual earnings from federal records and compares the median with the median earnings of high school graduates aged 25 to 34 in the same state. No site visit, no accreditation debate. Just the question of whether the credential moved the needle on pay.

The version in force since July 2024 pairs that earnings test with a debt-to-earnings test: a typical graduate’s annual loan payments cannot exceed 8 percent of income or 20 percent of discretionary income. It covers certificate programs everywhere and every program at for-profit colleges. And since July 2026, schools whose programs are at risk of failing must warn students, who have to acknowledge the warning before enrolling.

The programs that fail, and by how much

The failures cluster heavily. During the rulemaking, the department’s own analysis showed cosmetology and related grooming programs accounting for more than 40 percent of projected failures, by far the largest share of any field. Allied health and medical assisting came next at about 12 percent.

The gap is not close. A Century Foundation study found cosmetology graduates earning about $16,600 a year on average, roughly $9,000 less than workers with only a high school diploma, while carrying an average of $10,000 in student debt. In the department’s most recent analysis, roughly 92 percent of cosmetology programs were projected to fail the earnings test.

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A rule that four administrations fought over

The Obama administration finalized the first version in 2014, and the cosmetology industry sued. Education Secretary Betsy DeVos rescinded the regulations in 2019, citing that litigation among her reasons. The Biden administration rebuilt the rule in 2023 and put it into effect in July 2024.

The second Trump administration, rather than killing it, rewrote it and made it bigger. An April 2026 proposal became a final rule published July 1, 2026. The update drops the debt test and merges everything into a single earnings premium test effective July 2027. Degree programs at all institutions now face an earnings test for federal loan eligibility, with graduate programs measured against workers holding only a bachelor’s degree.

The first calculations arrive by July 2027, and the earliest a program can lose loan access is July 2028.

What the schools argue

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The cosmetology industry’s central objection is that its graduates’ incomes are understated because so much of the work is paid in cash and tips. The trade association has warned that up to two-thirds of its programs could fail and close, and argues that measuring earnings three years out misses later career growth.

The counter-evidence is awkward for that case. Research led by economist Stephanie Cellini found unreported income adds only about 8 percent to cosmetology earnings, far too little to close a $9,000 gap. And during the first Trump administration, government lawyers themselves wrote in court that the association offered no evidence of widespread unreported income.

Schools also argue the rule singles out their sector while traditional colleges skate. That complaint had force for a decade. As of the 2026 rewrite, it no longer does: the earnings test now reaches nearly everyone, and the underlying logic is hard to escape. Federal aid exists to buy students a return, and a program whose graduates earn less than non-graduates is charging them for standing still.

This article was constructed with the assistance of artificial intelligence and published by a member of The Washington Times' AI News Desk team. The contents of this report are based solely on The Washington Times' original reporting, wire services, and/or other sources cited within the report. For more information, please read our AI policy or contact Steve Fink, Director of Artificial Intelligence, at sfink@washingtontimes.com

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