New student loan regulations taking effect July 1 are reshaping the risk landscape for colleges and investors, with the latest Education Department data showing a significant shift in exposure from for-profit to nonprofit institutions.
Under the final earnings rule, 3.9% of Title IV aid dollars at nonprofit schools now land in programs projected to fail, a sharp increase from 0.8% under the previous gainful-employment test. In contrast, the proprietary sector's exposure drops to 14.9%, down from 28.6%. Overall, 4% of total Title IV aid—approximately $103.8 billion—is now in programs at risk of losing federal funding.
The rule requires undergraduate programs to demonstrate that graduates earn more than the typical high school graduate in their state, while graduate programs must show alumni earnings exceed those of bachelor's degree holders in similar fields. Programs failing in two of three award years lose access to federal loans, and three failures cut off all Title IV aid, including Pell Grants.
Investors tracking companies like Grand Canyon Education (NASDAQ:LOPE), Strategic Education (NASDAQ:STRA), Perdoceo Education (NASDAQ:PRDO), and private lenders such as SLM Corp (NASDAQ:SLM) and SoFi Technologies (NASDAQ:SOFI) must now look beyond tax status and focus on specific program offerings. The data shows that beauty and personal-care undergraduate certificates still post the highest failure rates at 93.2%, but graduate programs in mental and social health services now see 37.8% failure rates, up from 1.1%, while humanities graduate programs jumped to 21% from 2.1%.
Roughly 7 million borrowers enrolled in the SAVE plan face a 90-day window to switch to new repayment options, including the RAP or Tiered Standard plans. New caps on graduate, professional, and parent borrowing also take effect July 1, limiting graduate students to $20,500 annually with a $100,000 lifetime cap, professional students to $50,000 per year and $200,000 total, and Parent PLUS loans to $20,000 per year and $65,000 per child.
The changes are expected to create a funding gap that private lenders may fill, but schools can also impose their own borrowing limits. Education Under Secretary Nicholas Kent emphasized that "affordability is the name of the game," as the department aims to push schools to limit tuition. Clare McCann, policy director at the Postsecondary Education & Economics Research Center, told ABC News the changes "may be a bit of an overcorrection" that could impact "student access."
A last-minute court order on June 24 paused part of the professional-degree rule, leading the Education Department to temporarily classify nursing, physician assistant, physical therapy, and occupational therapy programs as professional, while theology programs (except master of divinity) were not granted that status. This slows the initial impact on stocks, with the first program closures not expected until summer or fall 2028, and Pell Grant cuts possible from 2029.
Jon Fansmith, senior vice president at the American Council on Education, warned of "negative unintended consequences" but noted the phased timeline. Career Education Colleges and Universities CEO Jason Altmire supported uniform standards but argued the earnings formula doesn't account for wage gaps in certain careers.
