FAFSA’s New Tool Could Kill Enrollment at Hundreds of Colleges

Federal Aid Form Flags Low-Earning Schools

The federal government just added a new warning label to the college application process.

Starting December 8, 2025, students filling out the FAFSA will see an alert if any school on their list produces graduates who earn less than people with only a high school diploma.

The flag pulls from federal earnings data and shows up after you submit the form.

With student loan debt approaching $1.7 trillion and most Americans now questioning whether college is even worth it.

The Education Department says families deserve to know which schools deliver on their promises and which ones leave graduates worse off than if they had never enrolled.

Yellow Box Alerts First-Time Students

When first-time undergraduates complete their FAFSA and select a school with poor earnings outcomes, a yellow notification box appears on their submission summary.

The message reads that some of their selected schools show lower earnings.

Students can click through to see detailed earnings data for every school on their list, with flagged institutions highlighted. From there, they can remove a school, add a different one, or keep their original choices.

The warning shows up only after the FAFSA has been processed, so it does not affect completion rates or whether schools receive student information.

Graduate Earnings Get Compared to High School Wages

The earnings indicator pulls data from the College Scorecard, a federal database tracking graduate outcomes. It measures median earnings of students who completed their degrees four years after graduation.

Those earnings are then compared to the median wages of high school graduates aged 25 to 34 in the same state.

If a school primarily serves out-of-state students, the comparison uses national high school earnings instead.

The current data reflects 2021 earnings from students who finished school in 2014-15 and 2015-16, adjusted for inflation to June 2025 dollars.

One in Four Colleges Carries the Flag

About 1,365 institutions now carry the lower earnings designation, which works out to roughly 23% of all schools in the federal database.

That sounds like a lot, but these flagged schools enroll fewer than 3% of all undergraduates.

The vast majority of students attend colleges where graduates do earn more than high school completers.

Community colleges fare relatively well under the new system.

According to preliminary analysis, only about 1.5% of community colleges, or fewer than 20 schools total, will carry the lower earnings flag.

For-Profit Schools Dominate the Warning List

The schools most likely to trigger the warning are concentrated in one sector.

About 88% of flagged programs operate as for-profit institutions, and most of them award certificates rather than degrees.

Cosmetology schools make up a huge portion of the list.

One 2022 study found that 98% of cosmetology programs fail to produce graduates who out-earn high school completers.

Beauty school networks like Aveda Arts and Sciences Institutes and Empire Beauty Schools have dozens of campuses that will now display the lower earnings disclosure.

Flagged Schools Collect Billions in Aid

The schools carrying the lower earnings flag may enroll a small share of students, but they receive a significant chunk of federal money.

Students attending these institutions receive more than $2 billion annually in federal student aid, including grants and loans.

That means taxpayer dollars are flowing to schools where graduates often end up worse off financially than if they had skipped college entirely.

The Department of Education framed the new indicator as a way to help students make informed choices before taking on debt they may struggle to repay.

Americans Have Lost Faith in College

The earnings indicator arrives as public confidence in higher education hits new lows. More than half of Americans now say a college degree is not worth the price of tuition.

Total outstanding student loan debt has reached nearly $1. 7 trillion, spread across more than 42 million borrowers.

Education Secretary Linda McMahon said families deserve a clearer picture of how college connects to real-world earnings.

The indicator aims to put hard numbers in front of students at a critical decision point, rather than letting them discover the disconnect after graduation.

The College Scorecard Started a Decade Ago

The data powering the new warning comes from the College Scorecard, which the Obama administration launched in 2015.

President Obama originally wanted to create a federal ratings system that would tie college funding to performance, but that idea drew fierce pushback from higher education leaders.

The scaled-back Scorecard instead released earnings, graduation, and loan repayment data for thousands of schools.

The Trump administration later added program-level earnings data in 2019.

No School Loses Funding Over This

The lower earnings flag is purely informational. A school can carry the warning and still receive federal student aid, maintain its accreditation, and enroll students who use federal loans and grants.

The Department of Education emphasized that the indicator should not be seen as the government judging which schools are worthy of attendance.

Students can acknowledge the warning and proceed anyway.

The goal, officials say, is transparency rather than restriction. Whether students actually change their choices based on the warning remains to be seen.

A Stricter Standard Kicks In Next Year

The voluntary warning is just the beginning. Congress passed the One Big Beautiful Bill Act earlier this year, which includes a “Do No Harm” provision that takes effect in July 2026.

Under that law, degree programs where graduates fail to out-earn high school completers for two out of three consecutive years will lose access to federal student loans.

Students could still receive Pell Grants, but the loan cutoff would effectively shut down many programs.

Undergraduate certificate programs, which often have the worst outcomes, were exempted from the new rule.

You Can Still Pick a Flagged School

The Department of Education made clear that the earnings indicator is one factor among many. Location, cost, program offerings, and personal goals all matter when choosing a college.

A school with lower average earnings might still be the right fit for someone pursuing a specific field or staying close to family.

Students who submitted their FAFSA before the feature launched can still log back in and check whether any of their chosen schools carry the flag.

The data will update as newer earnings figures become available through the College Scorecard.

The Real Test Comes Next Summer

For now, the warning is a nudge, not a barrier.

Schools flagged for lower earnings face no immediate consequences beyond a potential drop in applications. But the July 2026 deadline looms.

Programs that consistently fail the earnings test will have to explain to prospective students why federal loans are no longer available.

Some will improve outcomes or close down. Others will argue the data does not capture their value. Schools will have to prove their degrees lead somewhere.

Either way, the federal government has signaled that simply enrolling students and collecting tuition is no longer enough.

This article was created with AI assistance and human editing.

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