The Gainful Employment Rule: Tests, Aid Loss, and Disclosures

The Gainful Employment rule is a federal accountability standard that measures whether career-focused college programs leave graduates with earnings high enough to justify their student debt. Programs that fail the tests two years out of three lose access to Pell Grants and Direct Loans, which for most career-training programs ends the program. The current rule is codified at 34 CFR Part 668 and was finalized in 2023; a proposed 2026 rewrite would change how programs are judged, but the existing framework remains in effect.

Which Programs the Rule Covers

The rule reaches two groups. Every program at a for-profit college is covered, whether it awards a certificate, an associate degree, or a bachelor’s degree. Federal law requires eligible programs at proprietary schools to prepare students for “gainful employment in a recognized occupation,” and this rule enforces that requirement with measurable standards.¹

The rule also covers non-degree certificate programs at public and private nonprofit colleges. A one-year welding certificate at a community college has to meet the same benchmarks as a similar program at a for-profit trade school.¹

Traditional degree programs at public and nonprofit universities, like a bachelor’s in English or a master’s in history, are generally not subject to the pass-or-fail measures. They face separate disclosure requirements under the Financial Value Transparency framework, but they cannot lose eligibility through this rule.

The Two Tests a Program Must Pass

The Department of Education evaluates each covered program with two independent measures. A program must pass at least one to stay in the clear. The earnings figures come from the U.S. Treasury as aggregate medians, so schools cannot inflate the numbers.²

Debt-to-Earnings Rate

The debt-to-earnings rate compares what graduates owe to what they earn. The Department builds a hypothetical annual loan payment from graduates’ median debt using a fixed interest rate, then checks it against median annual earnings two ways:

Annual earnings test: the payment must not exceed 8 percent of total annual earnings to pass. A program fails if the payment exceeds both 12 percent of annual earnings and 30 percent of discretionary earnings.
Discretionary earnings test: the payment must not exceed 20 percent of discretionary earnings, meaning earnings above 150 percent of the federal poverty guideline for a single person.

A program passes if it clears either threshold. It fails only if it blows past both of the failing ceilings. Programs in between neither pass nor fail for that year.³

Earnings Premium

The earnings premium asks whether graduates out-earn people who never went to college. The Department compares a program’s median graduate earnings against a threshold set from Census data for workers whose highest credential is a high school diploma or GED. Earn more, pass. Earn the same or less, fail. The Department publishes the specific threshold each year in the Federal Register.⁴

The earnings premium catches programs the debt-to-earnings rate might miss. A cheap program with low debt but poor job placement can slide past the debt test while still leaving graduates earning less than a high school graduate.

When a Program Loses Federal Aid

A program becomes ineligible for Title IV federal student aid if it fails the same measure in two years out of any three consecutive years. Failing the debt-to-earnings rate one year and the earnings premium the next does not trigger ineligibility, because those are different measures. It has to be the same measure failing twice.²

Once a program is ineligible, the Department sends the institution a determination letter naming the failed metrics and the effective date. The school then has 30 days to tell all enrolled and prospective students that the program has lost federal aid, and to explain that they may need alternative financing or to transfer.²

Most career-training students rely on Pell Grants and Direct Loans, so losing that access typically ends the program. A program that loses eligibility, or that a school voluntarily closes while it is failing, cannot be reinstated for at least three years. The school also cannot skirt the block by rebranding: any program sharing the same four-digit federal Classification of Instructional Programs code is treated as substantially similar and stays blocked during those three years.⁵

What Schools Must Show You Before You Enroll

Every covered program has to publish standardized outcome data and link to the Department’s program information website. That link must appear on any webpage discussing cost, financial aid, or admissions, and on promotional materials.⁶

The required disclosures include the program’s published length, the actual median time students take to finish, total enrollment, the share of students who borrowed federal or private loans, median debt at completion, median post-completion earnings, whether the program holds specialized accreditation, and the program’s earnings premium measure.⁷

Beginning July 1, 2026, a related rule adds a step for some non-degree programs that are not themselves covered by Gainful Employment. If such a program has failing debt-to-earnings rates, prospective students must complete an acknowledgment on the Department’s program information website before the school can finalize enrollment. The acknowledgment stays in place until the program passes or three years pass since the last failing notice, whichever comes first. Signing the acknowledgment does not waive any future right to a loan discharge if the school misrepresented the program.⁶

If Your Program Closes or Failed You

If you were enrolled when a program lost eligibility and shut down, you may qualify for a closed school loan discharge. The Department will discharge a Direct Loan if the school closed while you were enrolled, or if you withdrew within 180 days before the closure. That 180-day window can be extended in exceptional cases, such as when the Department itself terminates a school’s participation in federal aid.⁸

If you finished the program, closed school discharge is not available, but borrower defense to repayment may be. That process applies when the school made false or misleading claims about things like job placement rates, expected salaries, or program accreditation. A failing Gainful Employment score by itself does not entitle graduates to loan forgiveness. It only helps if you can also document that the school misrepresented outcomes to recruit you, using materials like enrollment agreements, marketing pieces, or communications from recruiters.

Proposed 2026 Changes

In April 2026, the Department published a proposed rule called the Student Tuition and Transparency System, or STATS. It would drop the debt-to-earnings rate entirely and rely solely on an earnings premium measure for nearly all Title IV programs, both those currently covered by Gainful Employment and those that are not. It would also change the earnings comparison group from people with a high school diploma to people who never attended any postsecondary education.⁷

The public comment period closed May 20, 2026, and a final rule has not been issued. Until STATS is finalized, the current framework with both the debt-to-earnings rate and the earnings premium remains in effect. For anyone weighing a career-training program now, the practical point is the same either way: schools still have to disclose outcomes and link to the Department’s program information site, and you should read those numbers before you enroll.⁷

1
eCFR. 34 CFR Part 668 – Student Assistance General Provisions
2
Federal Register. Financial Value Transparency and Gainful Employment
3
Federal Student Aid. Explanation of Debt Measures
4
eCFR. 34 CFR 668.404 – Calculating Earnings Premium Measure
5
eCFR. 34 CFR Part 668 Subpart S – Gainful Employment (GE)
6
eCFR. 34 CFR Part 668 Subpart Q – Financial Value Transparency
7
Federal Register. Accountability in Higher Education and Access Through Demand-Driven Workforce Pell: Student Tuition and Transparency System (STATS) and Earnings Accountability
8
eCFR. 34 CFR 685.214 – Closed School Discharge