The three-legged stool, completed
Federal Student Aid certification is the payoff and the last leg. An eligible institution must be (1) legally authorized by a state, (2) accredited, or, for a public or nonprofit school, preaccredited, by a recognized accreditor, and (3) certified by the U.S. Department of Education. Only then may students use Pell Grants and federal loans. The rules live in 34 CFR part 600 and part 668.
Nonprofit vs. for-profit
This is where the sector choice bites. Under 34 CFR 600.4, a public or nonprofit “institution of higher education” can qualify if it is “accredited or preaccredited”, so a nonprofit can reach Title IV while still a candidate. Under 34 CFR 600.5, a “proprietary institution” must be fully “accredited”, and must have “been in existence for at least two years” providing a continuous educational program (the “two-year rule”). During a for-profit's initial participation, the Department will not approve additional programs that expand eligibility.
See Nonprofit or for-profit for the full comparison.
E-App, PPA and provisional certification
Institutions apply through the Federal Student Aid E-App, choosing initial certification. New schools must have an undergraduate withdrawal rate of no more than 33%. A first-time school is typically granted provisional certification (34 CFR 668.13), which expires at the end of the first complete award year; the Title IV administrator and chief administrator must complete federal training within 12 months of signing the “Program Participation Agreement”. Full certification later lasts up to six years.
90/10 and earnings accountability
Proprietary institutions carry extra federal rules:
- 90/10 rule (34 CFR 668.28): at least 10% of revenue must come from non-federal sources (and since 2023, military and veterans' education benefits count as federal for this test). One failing year means provisional status; two consecutive failures mean loss of eligibility for at least two years.
- Earnings accountability: the Department's new Student Tuition and Transparency System (STATS) and Earnings Accountability rule, published July 1, 2026 and effective July 1, 2027, tests whether graduates out-earn a benchmark (high-school completers for undergraduate programs, bachelor's holders for graduate programs). It applies to all sectors but hits for-profit and certificate-heavy models hardest.
Related resources
See Nonprofit or for-profit, Financial Aid for the student side, and Costs & timelines.
Frequently asked questions
- What three things does a college need for federal student aid? State authorization, accreditation (or preaccreditation for nonprofits) by a recognized accreditor, and certification by the U.S. Department of Education through the E-App and a Program Participation Agreement.
- Can a brand-new college offer federal financial aid right away? No. It must first be authorized, then accredited (nonprofits may use candidacy), then certified by the Department, and new schools start with provisional certification.
- What is the “two-year rule”? A proprietary (for-profit) institution must have operated a continuous educational program for at least two years before it can apply for Title IV eligibility. It does not apply to nonprofit degree-granting institutions.
- What is the 90/10 rule? A for-profit college must get at least 10% of its revenue from non-federal sources. Failing two years in a row costs it federal aid eligibility for at least two years.
- What is the STATS / earnings accountability rule? A 2026 federal rule, effective July 1, 2027, that measures whether a program's graduates out-earn a benchmark. It applies to all colleges but affects for-profit and certificate programs most.