Recently, the US Department of Education’s negotiated rulemaking committee reached consensus on a framework for implementing a “do no harm” earnings test for students completing postsecondary programs. This test sets two thresholds for undergraduate programs:

1. If the median earnings of an undergraduate program’s graduates don’t exceed the median state earnings for high school graduates, usually measured four years after completion, the program will lose the ability to provide federal loans.
2. If programs falling below that threshold account for at least half of an institution’s federal aid recipients or half of federal student aid funds, then the institution will lose the ability to provide Pell grants as well as federal loans.

Though it is important to hold postsecondary institutions accountable for students’ earnings, this blanket approach risks discouraging certain career paths with low wages but critical value to society. A more effective way to hold higher education accountable to student outcomes would be policies that rely on earnings and other indicators of program success.

What do earnings tests miss when assessing college programs?

Most people pursuing postsecondary education credentials expect increased earnings potential, but many also seek other rewards for themselves and for society.

Professions oriented toward helping others, such as early childhood education and social services, are prominent examples of careers that provide returns beyond individual earnings. Careers in the arts, which enrich the cultural environment, also carry benefits beyond financial returns. Some service occupations don’t pay well but contribute significantly to general quality of life. Phlebotomists are among the lowest-paid workers that require some short-term postsecondary training, and society would be worse off without an ample supply of qualified people in this and other low-paying occupations.

A pure earnings metric also does not account for the totality of person’s compensation. Health care coverage, retirement benefits, and paid time off vary considerably across occupations but would not show up in an earnings metric.

Other aspects of job quality are more difficult to convert to monetary equivalents. Many people would trade some amount of earnings for a more rewarding job, more flexibility and predictability in schedules and location, greater opportunities for advancement, or more autonomy. Ideally, public policy would reflect these nonmonetary benefits when assessing the value of an education.

Further, an earnings metric may struggle to account for labor market variation based on race, gender, or location. Although the do no harm framework partially accounts for location, long-standing differences in earnings outcomes across demographic groups do raise questions about an earnings frameworks’ effectiveness, particularly for frameworks that score programs along a scale of typical earnings, as opposed to setting a minimum threshold. Programs that enroll large shares of women, Black students, or others whose labor market rewards are systematically lower than average suffer in such rankings.

There is also variation in the amount people can earn without a postsecondary education. Some students who enroll in short-term programs would have earnings well below the average for high school graduates if they did not pursue further education. Even if the program measurably increases their earnings, it’s still possible that the program could fail an earnings test because of the students’ low average wages before enrollment. Comparing postcollege earnings with those of typical high school graduates could underestimate the added value a program can deliver. For students in selective programs, the comparison likely overestimates value added, as their earnings without college would likely be higher than the average for high school graduates.

How can policymakers address these issues?

Where do these realities leave federal policymakers attempting to develop effective systems for holding institutions accountable for student outcomes and for providing the information and guidance people need when choosing postsecondary and career pathways? Below, we’ve identified several ways policymakers can protect students who consciously choose low-wage careers and the programs that effectively educate students who enroll with particularly weak labor market prospects while directing students away from programs unlikely to support them in achieving their goals.

• Include nonwage benefits in evaluations. Because nonwage benefits vary widely across occupations, policymakers should account for benefits in evaluations. Ignoring these forms of compensation could mislead students about a program’s value.
• Pair earnings information with other indicators of outcomes and program quality. Graduation rates, time to completion, licensure pass rates, and student satisfaction (while difficult to ascertain) are critical measures of program quality. Students also need complete and transparent information about tuition and other program costs, available financial aid, and alternative paths to related occupations.
• Distinguish between programs with poor outcomes relative to others in the field and programs preparing students for occupations with generally low wages. Nondegree credentials in some fields—such as cosmetology, dental support, and allied health—generally lead to low earnings. Many cosmetology institutions already operate outside the federal student aid system, apparently with lower tuition prices. Perhaps training for some low-wage occupations will simply be ineligible for federal aid under any earnings test, but it is worth carefully considering the ramifications.
• Supplement earnings levels with measures of financial value added. Using the earnings of typical high school graduates as a threshold attempts to measure added value of postsecondary programs but ignores the role of personal and demographic characteristics in determining earnings potential. For older students, it may be possible to collect data on pre-enrollment earnings. But the concept is more complicated for younger students. Further investigation of alternative estimation approaches is needed.
• Explore ways to increase earnings for low-wage, high-value occupations. Our research shows only a weak correlation between a student’s field of study and eventual occupation, indicating that subsidizing students to study for low-wage, high-value occupations—including teaching or child care—is not an efficient strategy. Back-end subsidies, such as income-driven repayment or public service loan forgiveness, sidestep this problem. Still, these approaches only support those students who rely on debt financing. Instead, efforts to increase earnings in these occupations may be more efficient.
• Advance fairness in the labor market. Solutions to weak postsecondary labor market outcomes involve reform in the labor market, not just in the education system. Policymakers should tackle discrimination based on race, gender, and national origin and question whether poor compensation is best addressed through the education and financial aid systems or through direct labor market policies.

As important as earnings are, exclusively focusing on a program’s financial return to evaluate its success carries significant risks for students and the society dependent on their career choices and outcomes.

It may not be possible for a single accountability solution to adequately identify low-quality outcomes across all postsecondary programs, given the range of program types and lengths, differences in students’ circumstances and goals, and the nature of the labor market. And a simple formula to account for nonmonetary rewards and social benefits seems elusive.

Moving forward, policymakers must keep the shortcomings inherent to an earnings-only test front and center as they develop more-effective strategies for guiding students toward educational credentials that meet their goals and broader societal needs.