US Tuition Aid Reform Set to Start in 2027
Snapshot: Tuition loans in the US have been a focal point of education news over the past few months. Under the Department of Education’s new Student Tuition and Transparency System (STATS) and Earnings Accountability rule, undergraduate programmes must show that their graduates’ earnings exceed those of workers with only a high school diploma. In addition, the earnings from graduate programmes will be compared with workers holding only a bachelor’s degree. If a programme fails to meet these new earnings thresholds in two out of three consecutive award years, the program will simply no longer be eligible to participate in the federal Direct Loan programme. The DoE finalised these new rules on 1 July 2026, with 2027 set to be the first accountability year.
Why this matters: The new rule places greater responsibility on Universities to prove that their programmes deliver measurable labour-market value, and it hasn’t come out of nowhere. The backdrop is a $1.7 trillion federal student-loan portfolio (US DoE) and national concerns about graduate repayment outcomes. Approximately 9.5 million Americans are more than nine months behind on loan repayments (LA Times). So, it's not surprising that Federal loan access is being reframed as something programmes must now earn, rather than an entitlement attached to institutional status.
In the coming years, the market will react to this reform. We are likely to see even more prioritisation of professionally oriented programmes, and even fewer programmes in the arts and humanities sector, which have already had a significant downsizing. In 2025, US colleges awarded 30% fewer humanities bachelor’s degrees than at their 2012 peak, while institutions across the country have continued to close, suspend, or consolidate programmes in fields including English, history, languages, and the arts (Inside Higher Ed, Higher Ed Dive).
Questions we’re asking: Federal loans have historically played an important role in making US higher education accessible, with around one in four undergraduates taking out a federal Direct Loan in 2023-24 (Trends in College Pricing and Student Aid 2024, College Board). As the funding landscape shifts, we’re wondering which Universities will be hit the hardest and how quickly might we see the US higher education market decline in overall attraction?
The impact is likely to vary across the sector. US higher education is already under financial pressure, particularly among smaller and more tuition-dependent institutions. At least 16 nonprofit colleges announced closures in 2025 amid declining enrolment and financial challenges (Inside Higher Ed). Wealthier Universities with larger endowments and generous in-house financial aid packages may be better positioned to absorb the loss of federal loan access, while more tuition-dependent institutions may have fewer options. So, it begs the question – will this reform only reinforce an existing divide between institutions with the financial capacity to absorb these shocks and those that are already operating on much tighter margins? And what does that mean for student access to higher education?
There is also the question of how students begin to interpret the loss of federal loan eligibility. Even for students who would not necessarily need to take out a loan, does a programme failing the earnings test start to act as a wider indication of its perceived value? And what does this mean for its future demand?
But we think the most important question here is: How well can current earnings predict the future value of a degree? The labour market is changing quickly as AI reshapes both jobs and the skills that employers value. Programmes that fall below the earnings threshold today may equip graduates with capabilities, including critical thinking and creativity, that become more valuable as routine analytical and writing tasks are increasingly automated. How will the system account for changes in the labour market that are difficult to predict? A few years ago, programmes such as computer science and economics would have been our first examples of degrees that were likely to land students a decent job (The Guardian). Today, those assumptions are already shifting. Goldman Sachs President and COO John Waldron recently stated that intellectual curiosity and analytical thinking will become increasingly more important, adding that he is “rooting for the English majors, and the history majors, and the philosophy majors.” (Blackstone).
Using current graduate earnings to determine which programmes merit continued access to federal loans risks locking today’s labour-market assumptions into decisions about the skills students will need tomorrow.
On a positive note, there is a world where this reform bodes well for all University students, regardless of what they study. For programmes that are more likely to fall below the earnings threshold, Universities may work harder to ensure that graduates leave with greater transferable skills and clearer routes into employment. Rather than leaving employability largely up to students themselves, Universities may need to do more through industry partnerships, work placements, and better all-round career support. Ultimately, the future worth of a US University may be tied to how well it can predict future economies and not just how well it can educate and prepare students to work, think in, and live in a changing world.
One final thought – Recent tuition loan reform is not unique to the US. If you’re interested in knowing what’s happening in other markets, download this week’s Subscriber Slides.