Department of Education issues third-party servicer guidance changes

The U.S. Department of Education (ED) issued a new Dear Colleague Letter (DCL) (GEN-23-03) regarding requirements and responsibilities for third-party servicers (TPS) and institutions on Feb. 15, 2023. On Feb. 28, 2023, the future effective date for the guidance was established and the reporting deadline was extended to Sept. 1, 2023. Subsequently, ED delayed the effective date yet again through an update that was published on April 11, 2023, noting that the effective date of the revised final guidance letter will be at least six months after its publication allowing institutions to meet the reporting requirements.

The DCL notes that ED is revising its guidance in response to the growing number of entities that may be contracted by an institution to provide services as a means to increase enrollment and transition academic programs into a distance education format. ED has existing regulations that are imposed on an institution but has issued further guidance. The guidance clarifies that entities performing the functions of student recruiting and retention, the provision of software products and services involving Title IV administration activities and the provision of educational content and instruction are defined as TPS. The TPS are subject to such additional regulations.

While much of the DCL is consistent with previous guidance on TPS, the new DCL aims to expand the definition of who qualifies as a TPS based on the services performed to ensure entities are subject to important statutory and regulatory limitations. The expansion focuses mainly on entities that may perform services aligned with student recruiting, retention, development of instructional course content and dissemination of marketing materials. It is yet to be determined what additional requirements will be included in the Office of Management and Budget (OMB) Compliance Supplement regarding these new requirements that external auditors may be required to test.

The DCL includes a set of tables listing various functions and services that, if outsourced, would deem the entity performing such services subject to the TPS requirements, as well as a listing of exceptions that would not qualify as a TPS relationship. There is also a section of questions and answers.

The DCL also reminds institutions of the following key items related to TPS: