THE ALTERNATIVE CREDENTIALING & SKILLS ACT (ACSA)

A Bill to Establish Federally Recognized Merit-Based Credentials as an Alternative to Traditional Degrees

SECTION 1. SHORT TITLE

This Act may be cited as the “Alternative Credentialing & Skills Act (ACSA).”

SECTION 2. PURPOSE

To create federally recognized merit-based credentials as an alternative to college degrees, ensuring that individuals can demonstrate competency through measurable skills rather than seat time or institutional prestige. This Act extends the Workforce Pell framework enacted in Public Law 119-21 (the “One Big Beautiful Bill Act”), codifies employer incentives for skills-based hiring in the Internal Revenue Code, and operates inside existing Department of Education accreditation authority under 34 C.F.R. Part 602.

TITLE I — DEFINITIONS & STANDARDS

Vehicle: Definitional (no standalone vehicle). Terms defined in this Title apply throughout the Act and are operative under whichever vehicle carries the substantive Title that references them. The coordination clause in Sec. 105 is interpretive.

Sec. 101. Key Terms

(a) “Merit-Based Credential” A skills-based certification that verifies an individual’s ability in a specific domain or field, assessed through direct competency evaluations, rather than traditional degree programs. These credentials shall be recognized at the federal level and used for employment, professional licensing, and further education.
(b) “Competency-Based Assessment” A structured, objective evaluation measuring an individual’s actual knowledge, skills, and abilities in a field, as opposed to time spent in coursework. These assessments include:

Standardized competency exams in technical and professional domains.
Project-based assessments demonstrating hands-on expertise.
Workforce evaluations validated by employers and industry experts.
AI-verified skills testing utilizing adaptive learning analytics.

(c) “Equivalent Skills Certification” A federal certification that officially replaces degree requirements in public sector hiring and licensing boards for fields that do not legally require a degree.
(d) “Portable Credential” A certification recognized across all U.S. states, preventing local or state-level agencies from rejecting it in favor of traditional degrees.
(e) “Unbundled Higher Education” An education model in which individuals can earn and stack individual credentials in specific skills without being required to complete an entire degree program.

Sec. 105. Coordination with Existing Law

(a) Nothing in this Act shall be construed to duplicate, supersede, or conflict with:

The Workforce Pell provisions enacted in Public Law 119-21 (the “One Big Beautiful Bill Act”), which established Federal Pell Grant eligibility for short-term, workforce-oriented programs of 150 to 599 clock hours with effective date July 2026.
The Department of Education’s accreditation and recognition rulemaking proposed in April 2026 (91 Fed. Reg. ____), implemented under 34 C.F.R. Part 602.
The Workforce Innovation and Opportunity Act (WIOA), codified at 29 U.S.C. Sec. 3101 et seq., including the statewide employment and training activities authority in Sec. 134(c) and the performance accountability requirements in Sec. 116.
The National AI Initiative Act of 2020, codified at 15 U.S.C. Sec. 9401 et seq., and the NIST AI Risk Management Framework issued under 15 U.S.C. Sec. 278h-1.

(b) This Act extends, rather than replaces, the above authorities. Where this Act authorizes a new credential, program, or incentive, it shall be administered in coordination with the agencies and programs above.

TITLE II — NATIONAL ALTERNATIVE CREDENTIALING SYSTEM

Vehicle: Executive / regulatory. Implemented under existing Secretary of Education authority in Title IV of the Higher Education Act (20 U.S.C. Sec. 1099b) and 34 C.F.R. Part 602, in coordination with the Department of Labor under WIOA Sec. 3(52) (29 U.S.C. Sec. 3102(52)). No new agency is created; no new authorization or personnel ceiling is required. Precedent: The designation model follows the Secretary’s existing practice of recognizing accrediting agencies; federal hiring acceptance of FRACs extends the Office of Personnel Management’s authority to approve alternative qualifying pathways under 5 C.F.R. Part 302.

Sec. 201. Designation of Alternative Credential Oversight

(a) The Secretary of Education, acting through the Office of Federal Student Aid and in coordination with the Department of Labor under WIOA Sec. 3(52), shall designate one or more existing entities, or stand up a permanent designation within an existing office, to oversee alternative credentials under this Act. This designation shall not constitute a new agency within the meaning of 5 U.S.C. Sec. 105 and shall operate within existing Department of Education and Department of Labor appropriations.
(b) The designated oversight function shall:

Develop and validate alternative credentials eligible for federal recognition.
Ensure federal agencies and contractors accept merit-based certifications as an equal alternative to degrees.
Audit credentialing organizations for accuracy and reproducibility of scoring.
Publish crosswalks between state licensing requirements and alternative credentials to facilitate nationwide adoption.

(c) The oversight designation shall prioritize industry-driven credentialing, ensuring that skills-based certifications align with market needs and workforce demand, using terminology and performance indicators consistent with WIOA Sec. 116.

Sec. 202. Establishment of Federally Recognized Alternative Credentials (FRACs)

(a) FRACs shall be created in the following high-demand industries:

Technology (software development, AI, cybersecurity, data science).
Healthcare (medical coding, patient care, laboratory technology).
Engineering & Trades (electrical, mechanical, construction).
Business & Finance (accounting, financial analysis, operations management).
Legal & Government (paralegal studies, compliance, policy analysis).

(b) FRACs Shall Be Equal to Degrees for Federal Hiring

Any federal job posting requiring a degree must accept an equivalent FRAC.
Agencies failing to comply will face funding penalties and an audit of hiring practices under 5 C.F.R. Part 302.

TITLE III — FISCAL INCENTIVES FOR SKILLS-BASED HIRING

Vehicle: Reconciliation-eligible. Provisions in this Title have a direct budgetary effect: Sec. 301 creates a new Internal Revenue Code section; Sec. 302 amends the Workforce Pell program enacted in Public Law 119-21. Within the jurisdiction of the House Committee on Ways and Means and the Senate Committee on Finance for the tax credit, and of the House Committee on Education and the Workforce and the Senate Committee on Health, Education, Labor, and Pensions for the Pell amendment. Precedent: The credit in Sec. 301 is modeled on the Work Opportunity Tax Credit (26 U.S.C. Sec. 51) and the Employer-Provided Child Care Credit (26 U.S.C. Sec. 45F). Sec. 302 extends the framework already signed into law in Public Law 119-21.

Sec. 301. Employer Tax Credit for Skills-Based Hiring

(a) Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 45Z the following new section:

“SEC. 45AA. CREDIT FOR SKILLS-BASED HIRING.
“(a) IN GENERAL.—For purposes of section 38, the skills-based hiring credit determined under this section for the taxable year is an amount equal to a percentage of qualified first-year wages paid to each qualified skills-based employee, as specified by the Secretary of the Treasury in coordination with the Secretary of Labor.
“(b) QUALIFIED SKILLS-BASED EMPLOYEE.—An individual hired into a position for which a college degree would otherwise have been an announced or customary requirement and whose qualifying pathway is a Federally Recognized Alternative Credential under section 202 of the Alternative Credentialing and Skills Act.”

(b) Eligible employers may also receive:

Priority access to federal contracts, as established by the Federal Acquisition Regulatory Council.
Workforce development grants administered under WIOA Sec. 134(c), to support further skill training of hired employees.

(c) Private-sector employers receiving federal funding must publicly report how many employees were hired based on alternative credentials, on a form prescribed by the Secretary of Labor.

Sec. 302. Amendments to the Workforce Pell Program

(a) Public Law 119-21 is amended with respect to the Workforce Pell Grant program (amending the Higher Education Act of 1965, 20 U.S.C. Sec. 1070a et seq.) as follows:

STACKABILITY. — Program participants may combine eligible courses and credentials from more than one Workforce Pell-eligible provider toward the same aid eligibility, subject to duplication safeguards established by the Secretary of Education.
REUSABILITY. — Unused Federal Pell Grant balance accrued within the Workforce Pell program may be rolled forward to subsequent eligible programs without recalculation of lifetime eligibility caps.
CONTINUOUS ELIGIBILITY LADDER. — The Secretary shall establish a continuous eligibility ladder extending beyond the 150 to 599 clock-hour band established in Public Law 119-21, up to and including programs leading to Federally Recognized Alternative Credentials under section 202 of this Act.

(b) Federal Work-Study Expansion for Skill-Based Training

Students may apply Federal Work-Study funds under Title IV, part C of the Higher Education Act to industry-certified apprenticeships registered under 29 U.S.C. Sec. 50 et seq., instead of on-campus employment.

TITLE IV — STATE LICENSING & PORTABILITY OF CREDENTIALS

Vehicle: Reconciliation-eligible. Structured as a spending-clause condition on the receipt of Federal workforce funds under the Workforce Innovation and Opportunity Act (WIOA) Title I, Adult and Dislocated Worker programs (29 U.S.C. Sec. 3161 et seq.). The fiscal consequence of non-compliance — reduction of the State’s WIOA Adult and Dislocated Worker allotment — has a direct, non-incidental budgetary effect and fits within Byrd Rule constraints for reconciliation instructions to the Committees on Finance and Health, Education, Labor, and Pensions. Constitutional basis: South Dakota v. Dole, 483 U.S. 203 (1987), as applied to conditions on federal workforce grants that are related to the spending program and not coercive. Acknowledgment: State bills (introduced separately under the Merit Institute state program) will carry the primary enforcement mechanism of the licensing reforms in this Title. Federal action sets the spending-clause floor; State action sets the ceiling.

Sec. 401. Cross-State Recognition of Alternative Credentials

(a) Federally Recognized Alternative Credentials (FRACs) designated under Sec. 201 shall be treated as portable credentials for purposes of State licensing programs that are funded, in whole or in part, by Federal workforce funds, as defined in subsection (c).
(b) A State receiving Federal workforce funds shall not, as a condition of engaging in a covered occupation, require possession of an academic degree in lieu of a FRAC, except where possession of such degree is expressly required by Federal law (for example, doctor of medicine for physicians under 42 U.S.C. Sec. 1395x, juris doctor for attorneys admitted to practice before Federal courts, or other Federal statutory degree mandates).
(c) For purposes of this Title, “Federal workforce funds” means amounts appropriated under Title I of the Workforce Innovation and Opportunity Act (29 U.S.C. Sec. 3161 et seq.), including the Adult program (29 U.S.C. Sec. 3171), the Dislocated Worker program (29 U.S.C. Sec. 3172), and the Youth program (29 U.S.C. Sec. 3162). A State that fails to comply with subsections (a) and (b), or with Sec. 402, in any program year shall have its formula allotment under these programs for the next program year reduced by 5 percent for the first year of non-compliance, and by 10 percent for each successive year of non-compliance, up to a ceiling of 25 percent of the Adult and Dislocated Worker formula allotment. Reduced funds shall be reallocated to compliant States.
(d) A State may elect to decline the conditions of this Title by filing a notice with the Secretary of Labor; such an election forfeits the State’s Federal workforce funds for the program year in which the election is effective but does not affect the State’s receipt of any other Federal grants or formula allocations.

Sec. 402. Mandatory Alternative Pathways to Licensure

(a) As a further condition on the receipt of Federal workforce funds under Sec. 401(c), a State shall provide a non-degree, competency-based pathway to licensure in any State-licensed occupation for which a degree is not expressly required by Federal law.
(b) Licensing examinations administered by a State board receiving Federal workforce funds shall be open to any individual who meets the competency-based prerequisites of the pathway established under subsection (a), regardless of degree status.
(c) The reduction schedule of Sec. 401(c) shall apply in equal measure to non-compliance with this Section, and shall not be duplicative with reductions assessed under Sec. 401(c) for the same program year.

Sec. 403. State Plan Certification & Remediation

(a) Not later than 18 months after the date of enactment, each State receiving Federal workforce funds shall submit to the Secretary of Labor a certification that the State is in compliance with Sec. 401 and Sec. 402 or a corrective action plan setting forth the steps and timeline by which the State will come into compliance.
(b) A State operating in good faith under a corrective action plan accepted by the Secretary shall not be subject to the fund-reduction schedule of Sec. 401(c) or Sec. 402(c) during the pendency of the plan, provided that the plan is completed within 36 months of acceptance.
(c) The Secretary shall publish annually a list of States in compliance, States operating under accepted corrective action plans, and States subject to fund reductions under this Title.

TITLE V — AI-BASED SKILL ASSESSMENT & DATA PROTECTION STANDARDS

Vehicle: Executive / regulatory. Implemented under the National AI Initiative Act (15 U.S.C. Sec. 9401 et seq.) and the NIST AI Risk Management Framework (15 U.S.C. Sec. 278h-1). Data-protection provisions extend the Family Educational Rights and Privacy Act (20 U.S.C. Sec. 1232g). Precedent: No new agency; oversight sits inside the Office of Federal Student Aid and the Department of Labor’s existing data-security programs.

Sec. 501. AI-Verified Skill Testing & Oversight

(a) The oversight designation under Sec. 201 shall oversee the use of AI-based skills testing to ensure:

Reproducibility of AI scoring algorithms across repeated administrations.
Documentation of every input to the model and explainability of outputs.
Correlation of scores with subsequent on-the-job performance, reviewed at least annually.
Regular updates to align with workforce needs.

(b) AI-generated competency assessments must be explainable and reviewable by human auditors.

Sec. 502. Data Protection & Privacy Standards

(a) All alternative credentialing data must be encrypted and comply with:

Applicable Federal data-protection requirements, including 20 U.S.C. Sec. 1232g (FERPA) to the extent applicable, and FISMA (44 U.S.C. Chapter 35).
Anonymized reporting for non-consensual data analysis.

(b) Strict access controls to prevent unauthorized third-party use.

TITLE VI — IMPLEMENTATION TIMELINE & NEXT STEPS

Vehicle: Implementation (no standalone vehicle). Phase-in schedule takes effect under whichever vehicle carried each substantive Title.

Sec. 601. Phase-In Timeline

Year 1: Oversight designation under Sec. 201 made; initial FRACs published.
Year 2: IRC Sec. 45AA employer credit available for filing; Workforce Pell amendments effective.
Year 3: Full alternative credential portability enforced under Title IV.
Year 4: Federal agencies fully transition to FRACs in hiring under 5 C.F.R. Part 302.

TITLE VII — GENERAL PROVISIONS

Vehicle: Structural (no standalone vehicle). Severability, savings, rules-of-construction, and effective-date clauses operative under whichever vehicle carried the substantive Titles above.

Sec. 701. Severability

(a) If any provision of this Act, or the application of any provision to any person or circumstance, is held invalid by a court of competent jurisdiction, the remainder of this Act and the application of such provision to other persons or circumstances shall not be affected.
(b) It is the intent of Congress that the provisions of this Act be severable to the maximum extent permitted by law.

Sec. 702. Savings Clause

(a) Nothing in this Act shall be construed to impair or supersede any right, authority, obligation, liability, or appropriation existing under Federal law on the day before the date of enactment of this Act, except to the extent expressly provided by this Act.
(b) Actions taken, rules promulgated, orders issued, or recognitions granted under authorities amended by this Act and in effect on the date of enactment shall remain in effect until superseded by action taken under this Act.
(c) Nothing in this Act shall be construed to impair or supersede the Workforce Pell provisions of Public Law 119-21, the recognition of accrediting agencies under 34 C.F.R. Part 602, or the performance accountability provisions of the Workforce Innovation and Opportunity Act (29 U.S.C. Sec. 3101 et seq.), except to the extent expressly amended by this Act.

Sec. 703. Rules of Construction

(a) This Act shall be construed in coordination with, and not to duplicate or conflict with, the statutes and rulemakings identified in Sec. 105 (Coordination with Existing Law).
(b) No provision of this Act shall be construed to imply preemption of State law except where expressly so provided. Where a provision of this Act conditions the receipt of Federal funds on State action, nothing shall be construed to compel a State’s participation.
(c) Where a provision of this Act is subject to more than one reasonable construction, the construction most consistent with the purposes stated in Section 2 shall prevail.
(d) The designation of an existing agency or office under this Act shall not be construed as authorizing the establishment of a new agency within the meaning of 5 U.S.C. Sec. 105.

Sec. 704. Effective Date

(a) Except as otherwise provided in this Act, this Act shall take effect 180 days after the date of enactment.
(b) Title III (Fiscal Incentives for Skills-Based Hiring) shall take effect as follows: Sec. 301 (IRC Sec. 45AA) shall apply to taxable years beginning after December 31 of the calendar year of enactment; Sec. 302 (amendments to the Workforce Pell program) shall take effect concurrent with the July 2026 effective date of the Workforce Pell program established by Public Law 119-21, or upon enactment, whichever is later.
(c) Title V (AI-Based Skill Assessment) shall take effect concurrent with finalization of the Department of Education’s April 2026 accreditation rulemaking (91 Fed. Reg. ____), currently scheduled for November 2026, or upon enactment, whichever is later.
(d) Title IV (State Licensing & Portability) shall take effect 12 months after enactment, to provide a conforming period for States receiving covered Federal workforce funds.