Update on the Department of Education’s Third-Party Servicer Guidance

By: James Kvaal

As the Department of Education (Department) strives to make postsecondary education more affordable and student loans more manageable than ever before, we are also working to identify and remedy the root causes of unaffordable debts. President Biden has called for a postsecondary education system that’s not only more affordable, but more accountable to students, families, and taxpayers. For many families, an education beyond high school is among the most expensive and important purchases they will make in their lifetimes, as the quality and value of an individual’s postsecondary experience plays an immense role in their lifetime earnings and career options.  

Earlier this year, the Department released Dear Colleague Letter GEN-23-03 to bring more transparency into the contractors who work closely with institutions of higher education (institutions) on Title IV program management and delivery, particularly in the critical areas of recruitment and marketing. The Dear Colleague Letter stated which services would be considered activities of third-party servicers, a designation that offers additional transparency into the work of these companies. This included categories of activities identified in previous guidance and several new categories of services that constitute the administration of Title IV aid programs. This transparency gives the Department the ability to ensure that all entities engaged in the administration of Title IV aid programs are complying with applicable Federal laws and regulations. 

Consistent with the recommendations of the Office of Management and Budget, the Department seeks public comment on significant guidance documents when it is helpful and practicable. In this case, we sought to understand how the Dear Colleague Letter would affect the field and to identify areas of confusion or inconsistency, as well as any potential consequences that were not initially apparent.  

We received significant and helpful feedback in the form of more than 1,000 comments. The careful review of these comments and consideration of any revisions to the guidance letter will take time. We know that many institutions and companies have already begun to analyze their contracts in anticipation of reporting and compliance deadlines, and we understand the concerns that can cause. We are therefore providing additional time for institutions and companies to come into compliance with the guidance.  Specifically, we will delay the effective date of the guidance letter, and the September 1, 2023, date will no longer be in effect. The effective date of the revised final guidance letter will be at least six months after its publication, to allow institutions and companies to meet any reporting requirements. Deadlines for audit and contractual requirements will follow in fiscal years that begin after the effective date for the reporting requirements.  

In the meantime, we wanted to highlight several key pieces of information that we think the community should be aware of right away.   

Here is what we want everyone to know: 

• There are several activities that generated hundreds of comments but are not subject to third-party servicer requirements under the guidance. The Department does not consider contracts involving the following activities to constitute third-party servicer relationships:  
  • Study abroad programs.  
  • Recruitment of foreign students not eligible for Title IV aid.  
  • Clinical or externship opportunities that meet requirements under existing regulations because they are closely monitored by qualified personnel at an institution.  
  • Course-sharing consortia and arrangements between Title IV-eligible institutions to share employees to teach courses or process financial aid.   
  • Dual or concurrent enrollment programs provided through agreements with high schools and local education agencies, which are exempt because they do not involve students receiving Title IV aid.   
  • Local police departments helping to compile and analyze crime statistics, unless they write or file a report on behalf of an institution for compliance purposes.  
  • The Department will identify any other services that fall into this category as we review comments.   

• We intend to remove the provision of the guidance document pertaining to foreign ownership of a third-party servicer. That provision was included in guidance issued in 2016 to protect taxpayers from uncollectable liabilities against a foreign owner. However, based on comments received, the number and breadth of servicers with at least some level of foreign ownership has expanded in the context of a changing higher education marketplace where institutions are adopting increasing numbers of technology-based solutions, and we believe the issue is more appropriately considered through negotiated rulemaking.   

• We will carefully review public comments on areas of confusion or concern and consider clarifying and narrowing the scope of the guidance in several areas, including software and computer services, student retention, and instructional content. These clarifications could include other areas as we continue to review comments and seek to balance the need for greater transparency and oversight against administrative burden, among other factors.   

While we review the comments we received and prepare revisions to the guidance letter, previous Dear Colleague Letters GEN 12-08, GEN 15-01, and GEN 16-15 (as amended by our March 8, 2017, electronic announcement) remain in effect.  

The Department has already benefited from listening to the feedback from stakeholders. We will continue to review the helpful suggestions we have received and continue to engage with the community as allowable and appropriate. Doing so will help us ensure we ultimately strike the right balance between transparency, oversight, and institutional and third-party burden.