Final Program-Level Accountability Regulations Released
The Department of Education has finalized its regulations to implement the new earnings-based accountability regime from the One Big Beautiful Bill Act (OB3). Programs whose graduates' earnings fall short of a benchmark in two of three years lose Direct Loan eligibility. Institutions where too many students are concentrated in such programs can lose Title IV eligibility altogether. The rule takes full effect July 1, 2027, with narrower Direct Loan Agreement provisions effective August 31, 2026. These are separate from the loan-limit changes taking effect on July 1, 2026.
Though most of the framework remains the same as in the draft proposal published in April 2026, the Department made several changes and concessions to blunt the rule's impact on institutions, particularly institutions with religious missions and those that serve students with certain learning disabilities.
What changed between the proposed rule and the final rule
The Department made several changes to the NPRM, including a few targeted concessions:
The effective date for most of the rule is now July 1, 2027, with most of the provisions designated for optional early implementation by institutions. While this sounds like a one-year delay, as of this writing it is unclear whether anything has changed regarding the Department’s timeline for implementation. Despite the new implementation date, the Department’s initial earnings premium (EP) test determinations will still go out to institutions in early 2027, the first award year the test outcomes will apply to is 2027-2028, and the first time a program could lose Direct Loan eligibility remains award year 2028-2029.
This would suggest that the Department is utilizing the authority to collect earnings data and calculate EP metrics before the rule goes into effect. NAICU is working to clarify this with the Department.The parts of the rule that are going into effect on August 31, 2026, are two provisions: definition updates, and the requirement that institutions must sign an updated Program Participation Agreement (PPA) to maintain eligibility for Title IV programs. The provisions can be found in Part 685.
A "safe harbor" for institutions that stay out of, or opt out of, Direct Loans. New exemptions for low-earning programs from the institutional administrative-capability penalty if the institution either (a) hasn't participated in Direct Loans for the five most recently completed award years, or (b) voluntarily agrees (within 120 days of a first-time program failure) to bar Direct Loan borrowing in that specific program for at least five years, via a PPA amendment.
Disability-serving institutions carved out. Institutions that enroll only students with a Specific Learning Disability (SLD) or Autism (as defined under 34 CFR 300.8) are now exempt from the earnings-accountability eligibility consequences entirely. The Department concluded that applying the framework to these institutions could run afoul of Section 504 of the Rehabilitation Act, given well-documented labor-market earnings gaps for people with disabilities that have nothing to do with program quality.
A delayed determination for tipped-income occupations. The Department is delaying implementation of the EP test for programs that lead to occupations eligible for the new tax deduction on tipped income, where 50%+ of the occupation's earners receive tip income, and where the earnings calculation would otherwise rely on 2025-or-earlier graduate earnings data. The Department will still publish what the result would have been without the tipped income data, but treat these programs as neither passing nor failing. This is squarely aimed at cosmetology, barbering, and similar programs, which project to fail the EP test at very high rates.
New "$1 threshold floor" for data-poor graduate programs. Where Census Bureau data cannot support a reliable "same-state, same-field" bachelor's earnings comparison for a graduate program (i.e., fewer than 16 qualifying ACS respondents) and the institution enrolls 50%+ in-state students, the final rule sets that threshold prong to $1 rather than not calculating any threshold at all, effectively exempting ~2,650 affected graduate programs from failing on that comparison.
Simplified cohort-aggregation methodology. The proposed rule’s cohort-expansion process would have expanded, as a last resort, all the way to grouping programs sharing only a 2-digit CIP code, which was broad and often combined materially dissimilar fields, and would have reached back to add data from the eighth award year prior. The final rule removes both of those steps: aggregation now stops at the 4-digit CIP code level, and the "8th prior award year" data-pull is eliminated.
Expanded student warning requirements. Institutions that have failed the administrative capability test in at least one of the three most recent award years must now add specific language to student warnings: that enrolling in a low-earning outcome program could cost the student access to all Title IV programs, not just Direct Loans.
A timeline for appeals, and a specific list of items that institutions could appeal to dispute a failed EP test was created. The final rule provides a standalone appeal mechanism with more clarity than in the proposed rule. Institutions have 30 days from the Secretary's determination to appeal before eligibility consequences take effect, and the Department now specifies the exact grounds an institution can appeal on:
a. The accuracy of who's included in the completers list;
b. Which version of the earnings threshold was applied;
c. The median-earnings-vs-threshold comparison itself; and
d. Other bases the Secretary designates.
Prison Education Program/Comprehensive Transition Program exclusions clarified. Students enrolled in these programs are not included in EP test calculations, and will not be subject to consequences of failing either the EP test or the institutional administrative capability test.
Reporting timeline clarified. Institutions must report either the Financial Value Transparency/Gainful Employment requirements or the revised reporting requirements under the new framework (which would be early implementation) by October 1, 2026. Institutions that do not report the FVT/GE data fields will be assumed to have early implemented the new reporting requirements.
The Department projects the final rule will increase net Title IV transfers relative to current law: $1.5 billion in added Direct Loan volume across FY2027–2036, and $8.8 billion in added Pell Grant spending over FY2027–2036 because more certificate and lower-credential programs are expected to gain or retain eligibility than the number of degree programs expected to lose it.