Breaking down the OBBBA: earnings accountability for higher education institutions

The One Big Beautiful Bill Act (OBBBA) brings significant changes to federal student aid and higher education accountability. On July 1, 2026, the U.S. Department of Education (the Department) finalized rules establishing the Student Tuition and Transparency System (STATS) and a new Earnings Accountability framework. 

The framework replaces key elements of the existing Financial Value Transparency and Gainful Employment (FVT/GE) regulations and establishes new earnings standards for programs participating in the federal Title IV programs.

Most provisions take effect July 1, 2027, although institutions have the option to implement the requirements early. Understanding the new earnings test, reporting requirements and potential consequences of program failures will be critical as the first reporting and review cycles approach.

A new approach to earnings accountability

The new framework holds institutions accountable for student outcomes and whether federal financial aid supports programs that provide an adequate economic return. Previously, this accountability was addressed through the FVT/GE regulations, which used two metrics to measure program outcomes: the debt-to-earnings measure and the earnings premium measure. Those regulations are being replaced by the new Earnings Accountability framework, commonly referred to as the “Do No Harm” framework.

The new framework streamlines accountability by relying on a single metric: the earnings premium test. Unlike the previous rules, this test applies to every Title IV program at all institutions.

The consequences are also broader. While sanctions under the previous framework only applied to proprietary institutions, the new framework establishes a common standard across institution types. Programs that repeatedly fail the earnings test can ultimately lose Direct Loan eligibility and even all Title IV eligibility.

How the earnings premium test works

The earnings premium test compares the median earnings of graduates from a Title IV program with the median earnings of individuals with a lower education level. A program must have median earnings above its applicable benchmark to pass the test and avoid sanctions.

The median earnings measure is based on graduates of the program’s six-digit Classification of Instructional Programs (CIP) code from four years earlier who are currently working. The Department obtains earnings data from the IRS for the relevant period and uses median rather than average earnings for the calculation. 

The rules also establish a process for ensuring that the cohort is large enough to produce a meaningful calculation. When a program has fewer than 30 individuals in its cohort, the prior cohort is included. If that isn’t sufficient, the Department can expand the calculation to include up to four reporting periods. If that’s still insufficient, the calculation can be expanded to include students across the institution’s four-digit CIP programs.

The benchmark depends on the program’s education level and type. For undergraduate programs, the benchmark is the median earnings of individuals aged 25 to 34 whose highest credential is a high school diploma. The applicable benchmark is based on whether the institution primarily enrolls in-state or out-of-state students.

For graduate programs, the comparison is more nuanced and involves students with a bachelor’s degree, with the applicable benchmark determined by the program’s field and credential level.

What happens when a program fails?

When a program fails the earnings premium measure the first time, the institution is subject to warning requirements. If a program fails the measure twice within a three-year period, it is classified as a low-earning outcome program and is subject to a loss of Direct Loan eligibility. If, for two of the three award years, more than 50% of an institution’s Title IV recipients or more than 50% of its total Title IV revenue are from low-earning outcome programs, the institution will be placed on provisional status. Its low-earning outcome programs will then lose eligibility for all Title IV programs, in addition to Direct Loans.

If a program fails for the first time, the institution has three options:

1. Take no action: The institution can comply with the warning requirements and potentially lose Direct Loan eligibility for the program if it fails again.
2. Close out the program: The institution can stop enrolling new students while maintaining Direct Loan eligibility for current students.
3. Voluntarily discontinue Direct Loan participation: The institution can immediately end the program’s Direct Loan participation for five years. This option preserves the program’s eligibility for other Title IV programs.

Programs that fail and lose eligibility are ineligible for two years following the loss of eligibility. The same two-year period applies to programs that voluntarily discontinue participation.

If a program fails the first time and the institution takes no action, it must notify both current and prospective students that the program is at risk of losing Direct Loan eligibility.  This communication must be provided within 30 days of the program’s failure for current students. For prospective students, it must be provided before they enroll or register. The institution must also obtain written acknowledgment from each student or prospective student confirming receipt of the required notification.

Timeline and early implementation

With the rule finalized on July 1, 2026, now is the time for institutions to prepare for its new requirements. The new rule takes effect July 1, 2027, but institutions can implement it early. To do so, they must complete the reporting requirements by the October 1, 2026 deadline. These requirements are like the previous FVT/GE reporting requirements, with certain items excluded. The upcoming FVT/GE reporting deadline is therefore critical for institutions considering early implementation of the new Earnings Accountability rule.

Institutions that do not elect to implement early will be subject to the FVT/GE requirements and will be evaluated under both the debt-to-earnings and earnings premium measures.  As a result, programs could receive warnings in early 2027 if they fail either measure. Regardless of whether an institution implements early, following the fall reporting deadline, institutions will receive the draft completers list in early 2027 and can review it for accuracy. The final list will then be sent to the IRS to compile the earnings information needed for the calculation. By July 1, 2027, the final Earnings Accountability results will be available, and programs will be held accountable for passing or failing.

Delay for programs with tip income

For institutions with programs in the beauty and wellness sector and other sectors, there is a one-year delay in the application of sanctions for programs that lead to employment in occupations with a significant amount of tipped income. This change aligns with the new tax reporting rules that exempt tip income from taxable income. The final rule includes a list of these programs, and the Department will publish a full list in upcoming guidance. These programs will not be subject to the consequences of failing the metrics until July 1, 2028.

Institutions should assess how these changes affect their programs and ensure they are prepared to meet the new requirements. Discuss your specific situation with a Title IV audit expert.