The Department of Education just dropped the hammer. A new rule says colleges must prove their graduates are better off financially than non-graduates—or kiss federal financial aid goodbye. This isn't a suggestion. It's a guillotine for programs that churn out debt and worthless degrees.
How the Rule Works
The regulation, published last week under the 'Gainful Employment' framework, requires career-training programs at all colleges—public, private, and for-profit—to meet two benchmarks: graduates must earn more than a typical high school graduate in the same state, and their debt payments must not exceed 8% of their annual income. Fail for two of the next three years? You lose access to federal student loans and Pell Grants.
This is the third iteration of Gainful Employment. Obama tried it. Trump gutted it. Now Biden is bringing it back with teeth. The rule covers 2,700 programs—mostly at for-profit colleges and online universities—that collectively enroll 1.2 million students. These are the places that promise a career but deliver a bill.
“We are done subsidizing failure. If a college can’t show that students come out ahead, taxpayers won’t foot the bill.” — Education Secretary Miguel Cardona
The For-Profit Squeeze
Let’s not pretend this is about community colleges. The for-profit sector has spent decades gaming the system. They target veterans, single mothers, and low-income students with slick ads and easy enrollment. The result: median debt of $30,000, default rates three times higher than public colleges, and earnings that barely exceed a McDonald’s cashier. University of Phoenix, ITT Tech, Corinthian—the list of scandals is endless.
Under the new rule, 60% of for-profit programs are at risk of failing. That includes online giants like Grand Canyon University, which has already sued. Expect a legal war. The for-profit lobby will throw millions at Congress and the courts to kill this rule. But the data is on the government’s side: a 2023 study by the Center for American Progress found that students at failing programs earned $12,000 less per year than those at similar programs that passed.
The Hidden Impact on Public Colleges
Here’s where it gets interesting. The rule also applies to non-degree certificate programs at public universities—the kind that train welders, medical coders, and truck drivers. These are supposed to be the good guys. But many community college certificate programs are actually worse than for-profits on debt-to-income ratios. A 2024 report by the Institute for College Access & Success found that 18% of certificate programs at public colleges would fail the new tests.
That’s a problem. Because those programs are often the only affordable path to a middle-class job in rural areas. If they lose aid, students get pushed to for-profits—or drop out entirely. The rule doesn’t distinguish between a legitimate trade school and a diploma mill. It’s a blunt instrument.
The Numbers Don’t Lie
Here’s what the Department of Education’s own data shows: Over 10 years, students who attended failing programs borrowed $140 billion in federal loans. Their default rate: 28%. For programs that pass? 11%. That’s not a coincidence. It’s a pattern.
But here’s the uncomfortable truth the rule doesn’t address: most college debt comes from four-year universities, not career programs. Liberal arts degrees in English, sociology, and fine arts produce graduates with debt loads that exceed their earnings for a decade or more. Those programs are exempt because they lead to bachelor’s degrees. So the rule essentially punishes the trade schools while leaving the B.A. bubble untouched. That’s politically convenient—nobody wants to tell middle-class parents that their kid’s philosophy degree is a bad investment—but it’s intellectually dishonest.
The Enforcement Problem
Even if the rule survives legal challenges, enforcement is a joke. The Education Department has a track record of missing deadlines and losing lawsuits. The recent collapse of the student loan forgiveness program proves they can’t manage large-scale reform. And the rule relies on self-reported earnings data from the Social Security Administration—which is notoriously slow and incomplete. By the time a program is flagged as failing, hundreds of students are already trapped in it.
What’s needed is real-time data and automatic suspension of aid for programs that show clear patterns of abuse. Instead, we get a three-year grace period and a promise to ‘review.’ That’s not accountability. That’s theater.
The Verdict
This rule is a step in the right direction. It will kill the worst programs. It will save billions in taxpayer money. But it’s too narrow and too slow. The real fight is over four-year degrees, and the government is ducking it. Until we ask the question that truly matters—should a college be allowed to take federal money if most of its graduates can’t pay back their loans—we’re just rearranging deck chairs on the Titanic of student debt.
If you’re a student thinking about enrolling in a for-profit college next month, check the Department of Education’s new 'College Scorecard'—but don’t trust it. The data is a year old. The rule won’t kick in until 2027. And the sharks are already circling.
