Issue Briefs

About

OB3 created what is commonly called the "do no harm" (DNH) or “student tuition and transparency system” (STATS) framework, which was designed to ensure students do not leave a program financially worse off than when they entered. The core mechanism is an earnings threshold, or an “earnings premium” (EP) test. A program is evaluated on whether its completers' median earnings, measured four years after completion, meet or exceed a defined comparison benchmark:

• For undergraduate degree programs, completers' median earnings are compared to those of working adults ages 25-34 in the institution's state who hold only a high school diploma (the national median is used if the institution enrolls more than 50% of students from out of state).

• For graduate programs, completers' median earnings are compared to those of working adults ages 25-34 holding a bachelor's degree.

A program whose completers' earnings meet or exceed the benchmark passes; one that falls short fails. After a single failure, the institution must warn current and prospective students that the program is at risk. If the program fails twice in three years, it is designated as a "low-earning outcome program" and loses eligibility to participate in the Direct Loan program for a minimum of two years, though the period may extend indefinitely under certain circumstances.

The statutory penalty affects only federal student loans, so Pell Grant, Federal Work-Study, and Supplemental Educational Opportunity Grant eligibility are not affected. However, during negotiated rulemaking, the Department of Education created a new penalty of their own by tying the outcomes of the EP test to all Title IV eligibility. This is called the “administrative capability” or “50-50” test because institutions fail this test if more than 50 percent of their Title IV enrollment or revenue are in programs that have failed the EP test.

Importantly, the earnings data is calculated and supplied by the federal government (using tax data) for Title IV-recipient completers who are working. Institutions generally cannot run these calculations themselves, and non-completers and non-Title IV completers are excluded.

The shift from institutional to program-level accountability reflects a policy judgment that institutional averages obscure program-level variation in student outcomes. Private, nonprofit institutions have generally supported the transparency goals of program-level frameworks while raising substantive concerns about their design, most of which can be found in our comment to the Department of Education on its proposed rule.

History

Earnings- and debt-based program accountability originated with the Obama Administration's gainful employment regulations, which targeted abuses largely in the career-college sector but were short-lived and, after litigation, were terminated by the first Trump Administration in 2019.

The Biden Administration finalized a new combined Financial Value Transparency/Gainful Employment rule in 2023 (effective July 1, 2024), pairing a debt-to-earnings rate with an earnings premium test and estimating that failing programs would be heavily concentrated in the for-profit sector. Notably, no program has ever actually lost federal aid eligibility under any prior version of the gainful employment rule, owing to repeated legal, administrative, and operational challenges.

In 2025, OB3 moved an earnings test into statute for the first time. Implementation ran through the Department's AHEAD negotiated rulemaking, which reached consensus in early 2026; a Notice of Proposed Rulemaking followed (with public comment open into May 2026), and final rules will take effect July 1, 2027. The first earnings calculations are anticipated in early 2027 (using completers from the 2021 award year), with the first possible loss of Direct Loan eligibility on July 1, 2028.