Know before you go (with federal aid) to high-risk, low-earnings colleges

When students apply for federal aid, they'll see a know-before-you-go warning about colleges where students have poor financial outcomes, reports Natalie Schwartz on HigherEdDive. This week, the U.S. Department of Education "launched a new disclosure feature that warns students who fill out the Free Application for Federal Student Aid (FAFSA) if they’re interested in colleges whose graduates have relatively low earnings."

The box states: “Students graduating from some of the schools you selected don’t always earn more money than people with only a high school diploma.” 

If students click on the box, they'll see earnings information for all the colleges they listed. They can still ask that their FAFSA information be sent to a college with low earnings, but at least they'll have some idea about the risks.

Graduates at nearly 1,000 colleges earn less than high school graduates, writes Preston Cooper on AEI Ideas. Most are private, for-profit schools with high tuition. Many specialize in cosmetology, a trade that does not require a college degree.

High-risk schools enroll only 2 percent of undergraduates, but collect nearly 5 percent of federal aid and Pell Grants, nearly $4 billion in the 2024-25 academic year.

While would-be students are free to ignore the warning and collect federal aid, that will change Cooper writes. "Under a separate policy passed as part of the One Big Beautiful Bill Act, students attending degree programs with low earnings outcomes will lose access to federal loan aid, though this policy will not be implemented until next summer at the earliest."

Focusing on degree programs could affect many more students' college plans. At many colleges and universities, most graduates out earn workers with only a high school diploma. But earnings can be very low for graduates in fine arts, theater and other majors.

Forty-three percent of associate degrees and 23 percent of bachelor's degrees have a negative return on investment, estimates Cooper's Foundation for Research on Equal Opportunity. That includes the cost of attending college.

Poorly prepared students are at high risk of ending up in debt-but-no-degree limbo.