Important April 11, 2023 Update on the Department of Education’s Third-Party Servicer Guidance – ED.gov Blog

On April 11, 2023, U.S. Department of Education Under Secretary James Kvaal posted an important update to Dear Colleague Letter 23-03 – https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2023-02-15/requirements-and-responsibilities-third-party-servicers-and-institutions-updated-feb-28-2023D. That February 2023 DCL rocked the higher education and ed tech community by proposing broad changes to the reach of the Title IV Third Party Servicer definition (34 C.F.R. 668.2; 668.25), Specifically, that DCL described the types of services that would be considered activities of “third-party servicers”, a designation that the Department was seeking to utilize to secure additional transparency into the work of certain companies partnering with institutions of higher education that participate in Title IV, Higher Education Act student financial aid programs. The Department notes it received more than 1,000 comments in the public comment period after publication of the DCL, and that it continues to review those comments in preparation for release of revised guidance.

Most critically, the Department has decided to delay the effective date of the guidance letter, and the September 1, 2023 deadline for compliance in the DCL will no longer be in effect. The effective date of the forthcoming 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.

The update also lists immediate changes in the interpretation of DCL 23-03 that the Department wanted to communicate immediately:

Specifically, 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 it reviews comments.
- The Department also intends to remove the provision of the guidance document pertaining to foreign ownership of a third-party servicer. It will consider any further changes in the context of an announced future negotiated rulemaking on Third Party Servicer issues.
- The Department 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 it continues to review comments and seeks to balance the need for greater transparency and oversight against administrative burden, among other factors.
- While the Department reviews the comments and prepares 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.

See Update on the Department of Education’s Third-Party Servicer Guidance – ED.gov Blog