Federal earnings test puts college degrees on the clock

A typical conversation between a high school student, their grown-ups, and a college counselor used to start with campus culture and tuition. Now the discussion is not just what a degree costs — but what it pays.

Undersecretary of Education Nicholas Kent told a policy negotiating panel in December that the reckoning is here: "The time for the hard reset of education is now."

That reset starts with looking at how higher education is funded. With the federal student loan portfolio nearing $1.7 trillion, Kent said taxpayers are no longer willing to write blank checks.

"Taxpayers are funding a massive federal expenditure on post-secondary education,” he said. “The receipts they want are results."

Starting in July, colleges have a two-year window to show their graduates outearn a typical high school graduate — or risk losing access to Pell Grants and other forms of federal aid.

The Department of Education is highlighting this information as part of a new earnings indicator attached to the Free Application for Federal Student Aid, which is the application most students fill out to get help paying for college. The indicator is intended to serve as a kind of warning label that helps students and their parents decide if a school’s "price tag" is worth the salary they'll get after they graduate.

Some states aren't waiting for Washington to ask for receipts.

State education and university leaders are trying to keep track of this data on their own through tools like the Post-Secondary Employment Outcomes, which is a service provided by the U.S. Census Bureau. The service uses national labor market data and wage records to track where college graduates move and exactly how much they are earning, even if they leave their home state or the state where they attended college.

The WASC Senior College and University Commission, a higher education accrediting agency based in California, now features virtual dashboards that show median earnings for different college programs by institution.

"We have a bit of a consumer protection role," said Maria Toyoda, president and CEO of the commission. But, “it’s only material to us if the [earnings] outcomes significantly differ.”

Massachusetts, North Dakota, Arizona, and other states are innovating with new reduced-credit bachelor's degrees. These programs promise a work-ready education in fewer years.

The Southern Association of Colleges and Schools, for example, approved a pathway for three-year bachelor's degrees across 11 states, citing affordability and workforce alignment. Nearly 100 colleges are now planning or have launched reduced-credit programs that cut electives and aim to lower costs, according to the higher ed accreditor.

“The general public just wants to know, is this worth the investment for my son or daughter?" said Lisa Johnson, deputy commissioner for academic and student affairs at the North Dakota University System.

She said the shorter degree programs aren't yet for licensed careers, like nursing or teaching. They have fewer elective credits and could start enrolling students as early as the fall of 2026. And North Dakota’s Bismarck State College and Valley City State University are already designed to build upon two-year associate degrees with a focus on practical, industry-specific skills in fields like energy management, business, and technology.

Johnson said the goal is to target fields where workers are needed now.

"Bachelor of Applied Science degrees are sort of intended to be for direct entry into the workforce as opposed to preparation for a master's degree or graduate level work," she said.

Some states are also considering legislation that would eliminate low-earning majors at public colleges. Universities would use wage records for graduates of specific majors or programs to determine which degrees might not provide a financial return for students that meets the federal standard.

But Toyoda said salaries are not the only measure of a successful education.

"Obviously, this isn't measuring other things like the development of soft skills,” Toyoda said, pointing to the value industries see in communication, teamwork, adaptability, and problem-solving. “It might have to do with, you know, personal development — that sort of thing.”

The federal earnings test might be a “unidimensional measure”, she said, but it is the measure that the Department of Education has landed on.