Before the One Big Beautiful Bill Act (OBBBA), the federal government’s higher education loan programs did little to hold schools accountable for student outcomes. Without accountability, ineffective schools and degree programs persist. A significant number of students drop out or fail to graduate, resulting in debt without the degree to improve their financial position. Even among graduates, many degree programs are unlikely to produce an acceptable return on investment (ROI). OBBBA implemented an earnings test that compares the earnings of programs’ graduates with the earnings of young adults with educational attainment just below the degree. Schools risk losing access to direct student loans. But accountability could go further.

Colleges that rely on federal student loans should be subject to a “debt-to-earnings” test that would build on those in the financial value transparency rule and gainful employment rule. The test would compare annual loan payments for recent graduates with their earnings and cut off access to schools for which the median loan payment exceeds 8 percent of median earnings. The price of the education a college provides should also play a more explicit role in evaluating value. For instance, the ROI metric could compare the average increase in lifetime earnings from getting a degree from a specific program in a specific school with the cost of attendance for that program. Schools could also be put at risk of losing Pell Grant funding for low-ROI programs. Policymakers could also provide cash grants to low-income and other disadvantaged students that, for purposes of calculating ROI, could be deducted from the cost of attendance to ensure that schools do not cherry-pick students they believe are more likely to succeed.