For the first time, colleges across the country will face a hard financial penalty if their graduates do not earn more than they might have with only a high school diploma. For students in California, the new benchmark comes to about $36,000 a year.

What the rule does

Under a rule finalized by the U.S. Department of Education, every college, university and short-term certificate program must show that its graduates earn at least the median wage of a working adult in their state who holds only a high school diploma. Programs that fall short in two of three consecutive years lose the ability to enroll students who borrow through the federal Direct Loan program, CalMatters reported. For many programs, losing access to federal loans would be a serious blow, since those loans are how a large share of students pay tuition.

The measure grows out of the Working Families Tax Cuts Act, the sweeping tax-and-spending law President Trump signed in July 2025. The Education Department issued the final rule in late June, with most provisions taking effect July 1, 2027 and an option for schools to begin reporting under the system a year earlier.

The California number

The threshold varies by state because it is tied to local wages. In California, a worker with only a high school diploma earns a median of about $18 an hour, or roughly $36,000 a year, just above the state minimum wage, according to CalMatters. A program clears the bar only if its graduates typically earn more than that.

By the Education Department's own analysis, about 300 California programs could fail the test. The hardest hit are concentrated in cosmetology and other short-term vocational fields, along with some arts programs, where graduates often earn modest wages relative to what they pay to train.

The debate

Supporters say the rule is overdue consumer protection. Students who borrow to attend college, they argue, have a reasonable expectation of earning more than they would have without the degree, and federal aid should not underwrite programs that leave graduates no better off but saddled with debt.

Critics counter that a single earnings number is a blunt instrument. It can penalize fields that pay poorly but serve a public good, they say, and it may hit low-cost community college and trade programs whose graduates go into worthwhile but modestly paid work. Some educators have also argued that the test reduces the value of an education to a paycheck and undercounts income in tip-heavy trades. A push to let schools also pass by showing that graduates' loan payments remain manageable did not make it into the final rule.

What comes next

California schools now have roughly two years before the accountability provisions bite, time that colleges can use to improve outcomes, steer students toward better-paying tracks, or wind down programs that cannot clear the bar. The first real test will come as the earnings of recent graduates are measured against the new standard, and administrators across the state will be watching to see which of their programs land on the wrong side of $36,000.