U.S. Department of Education Updates Third Party Servicer Guidance

On May 16, 2023, the United States Department of Education (the “Department”) updated its Third Party Servicer Guidance issued in GEN-23-03.  The new Dear Colleague Letter (“DCL”) officially delays indefinitely the previously issued guidance.  It also removes the prohibition on contracts between institutions of higher education and foreign owned or operated third party servicers.

This DCL replaces the prior update posted in a blog by Undersecretary Kvaal, in which he commented that the department was effectively delaying the prior DCL.  This formalizes that announcement.

The DCL indicates that institutions will be provided with at least six (6) months advance notice before the effective date of any future formal guidance.  The deadlines for audit and contractual requirements in any new guidance will be delayed until the institution’s first fiscal year beginning after the effective date for the reporting requirements.  We read this to mean that institutions and Third Party Servicers will not be required to retroactively implement the new guidance.

Finally, the Department also clarified that institutions may contract with foreign owned Third Party Servicers.  It rescinded earlier guidance on this issue.  The Department did note, however, that this issue may be subject to rulemaking in the future.

Institutions and potential Third Party Servicers should continue to evaluate how they may be impacted by new regulation or guidance in this area.  It is clear that the Department is intent on increasing its oversight of Third Party Servicers by expanding the scope of services that fall into the Third Party Servicer bucket in the Higher Education Act.  In addition, the Department has identified Third-Party Servicers and Related Issues for rulemaking in the fall of 2023. Concerned parties should continue to monitor developments from the Department as they arise over the next several months.

USDE Publishes Final Rule on 90/10 Rule and Change in Ownership Regulations

On October 28, 2022, the U.S. Department of Education (Department) published the Final Rule (FR) that makes significant and wide-ranging changes to the 90/10 Rule and the change in ownership and control (CIO) regulations. In the accompanying Fact Sheet, the Department stated that the FR will “promote accountability…and strengthen protections for veterans, service members, students, and borrowers.”

The FR amends Title IV Revenue and Non-Federal Education Assistance Funds regulations to implement the statutory change in the American Rescue Plan Act of 2021 (ARP) and amends which non-Federal funds can be counted when determining compliance with the 90/10 rule. The FR also amends regulations to clarify the process for consideration of changes in ownership and control (CIO).

Below is a high-level summary of the major revisions to the 90/10 and CIO regulations. Continue reading “USDE Publishes Final Rule on 90/10 Rule and Change in Ownership Regulations”

U.S. Department of Education Announces 90/10 Rulemaking

On October 4, 2021, the Department announced their intention to conduct negotiated rulemaking on the 90/10 rule pursuant to the provisions in Section 2013 of the American Rescue Plan Act of 2021 (“ARPA”). The Department also announced two public hearings for interested parties to provide comment.

Section 2013 of the American Rescue Plan Act of 2021 (ARP) amended HEA section 487(a)(24) to require that a proprietary institution derive at least 10 percent of its revenues from sources that are not Federal education assistance funds. Federal education assistance funds are “Federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution.” Section 2013(c)(2) of the ARP provides that regulations developed and published on 90/10 by the Department will not be effective until on or after January 1, 2023.

The notice further indicates that the Department intends to develop proposed regulations affecting institutional and programmatic eligibility, including the 90/10 rule.   This language leaves open the possibility that the committee may consider additional regulatory changes. The scheduled public hearings, however, are limited to comments on 90/10. They will announce the topics and schedule of committee meetings in a subsequent Federal Register notice. Continue reading “U.S. Department of Education Announces 90/10 Rulemaking”

U.S. Department of Education Proposes Massive Rewrite of Title IV Regulations

Later this month the Department of Education will embark on the first steps towards a massive rewrite of programs authorized by Title IV of the Higher Education Act of 1965. The Department is seeking input on a wide range of federal higher education topics, as identified in the notice, as well as input on how the Department could address gaps in postsecondary outcomes such as retention, completion, loan repayment, and student loan default by race, ethnicity, gender, and other key student characteristics. Continue reading “U.S. Department of Education Proposes Massive Rewrite of Title IV Regulations”

FSA Delays Annual Student Loan Acknowledgment Requirement

On March 8, 2021, the Federal Student Aid office (“FSA”) of the U.S. Department of Education (“Department”) published an Electronic Announcement that delays the implementation date for the Annual Student Loan Acknowledgment. In a November 21, 2019 Electronic Announcement, the Department had previously notified schools about a change to the Master Promissory Note (MPN) confirmation process.

Pursuant to the new process, student and parent borrowers are required to view how much they currently owe in federal student loans, and to acknowledge that they have seen this amount before a school can make the first disbursement of the first Direct Loan that a student or parent borrower receives for each new award year.

The Annual Student Loan Acknowledgement process will continue to be available on StudentAid.gov. However, borrower completion of the Annual Student Loan Acknowledgement prior to disbursement will not be required for the 2021–22 Award Year.

At this time, all processing related to the Annual Student Loan Acknowledgement will continue under existing business rules. Schools will continue to receive information about a borrower’s completion of the Annual Student Loan Acknowledgement process on StudentAid.gov.

Please see the November 2019 Electronic Announcement for more information about the Annual Student Loan Acknowledgement process and the technical requirements.

Department of Education releases new Clery Act Appendix; Rescinds 2016 Handbook for Campus Safety and Security Reporting

On October 9, 2020, the Department of Education (the “Department”) posted an Electronic Announcement announcing the rescission of and replacement for the 2016 Handbook for Campus Safety and Security Reporting. Through this announcement, the Department is rescinding the guidance in the 2016 Handbook and replacing it with a Clery Act Appendix to the Federal Student Aid (“FSA”) Handbook. The electronic announcement identifies and explains the significant changes between the 2016 edition and the new Clery-related Appendix. The Department anticipates that this rescission and publication of the new Appendix will help simplify Clery compliance.  Continue reading “Department of Education releases new Clery Act Appendix; Rescinds 2016 Handbook for Campus Safety and Security Reporting”

May 4, 2020 Deadline for Public Comment on Important Distance Education Rulemaking

On April 1, the U.S. Department of Education (“USDE”) published a long-awaited Notice of Proposed Rulemaking (NPRM) for Distance Education and Innovation in the Federal Register. The proposed regulations are the final part of the consensus negotiated rulemaking that occurred in 2019. This regulation comes at an important time as institutions across the country are transitioning to varying forms of distance education due to COVID-19, albeit temporary or longer term. The NPRM represents the next step in the Department’s agenda to modernize its distance education regulations to promote innovation and reflect technological advancements, while protecting program quality. One key component of the NPRM is the new proposed definition of “regular” and “substantive” interaction between instructors and students for Title IV eligibility purposes. In the past, Title IV institutions have been assessed multi-million dollar fines for violating substantive and regular interaction requirements that were not well-defined in regulation. The NPRM also proposes revised credit and clock hour definitions directly addressing distance education and makes changes to recognize subscription based delivery of online education.

If your institution offers distance education and/or direct assessment programs, you should strongly consider analyzing and commenting on the proposed regulations. The Department has indicated that the Final Rule will be published by November 1, 2020, to allow an effective date of July 1, 2021. Comments are due by May 4, 2020 and must be submitted through the Federal eRulemaking Portal or via postal mail, commercial delivery, or hand delivery. The Department will not accept comments submitted by fax or by email or those submitted after the comment period.

Summary of the Major Provisions

As provided in the NPRM, the proposed regulations would:

  • Clarify that when calculating the number of correspondence students, a student is considered ‘‘enrolled in a correspondence course’’ if correspondence courses constitute 50 percent or more of the courses in which the student enrolled during an award year;
  • Limit the requirement for the Secretary’s approval to an institution’s first direct assessment program at each credential level;
  • Require institutions to report to the Secretary when they add a second or subsequent direct assessment program or establish a written arrangement for an ineligible institution or organization to provide more than 25 percent, but no more than 50 percent, of a program;
  • Require prompt action by the Department on any applications submitted by an institution to the Secretary seeking a determination that it qualifies as an eligible institution and any reapplications for a determination that the institution continues to meet the requirements to be an eligible institution for HEA programs;
  • Allow students enrolled in eligible foreign institutions to complete up to 25 percent of an eligible program at an eligible institution in the United States; and clarify that, notwithstanding this provision, an eligible foreign institution may permit a Direct Loan borrower to perform research in the United States for not more than one academic year if the research is conducted during the dissertation phase of a doctoral program;
  • Clarify the conditions under which a participating foreign institution may enter into a written arrangement with an ineligible entity;
  • Provide flexibility to institutions to modify their curriculum at the recommendations of industry advisory boards and without relying on a traditional faculty-led decision-making process;
  • Provide flexibility to institutions when conducting clock-to-credit hour conversions to eliminate confusion about the inclusion of homework time in the clock-hour determination;
  • Clarify the eligibility requirements for a direct assessment program;
  • Clarify, in consideration of the challenges to institutions posed by minimum program length standards associated with occupational licensing requirements, which vary from State to State, that an institution may demonstrate a reasonable relationship between the length of a program, as defined in 20 U.S.C. 1001(b)(1), and the entry-level requirements of the occupation for which that program prepares students;
  • Clarify that a student is not considered to have withdrawn for purposes of determining the amount of title IV grant or loan assistance that the student earned if the student completes all the requirements for graduation for a non-term program or a subscription based program, if the student completes one or more modules that comprise 50 percent or more of the number of days in the payment period, or if the institution obtains written confirmation that the student will resume attendance in a subscription-based or non-term program;
  • Clarify satisfactory academic progress requirements for non-term credit or clock programs, term-based programs that are not a subscription based program, and subscription-based programs;
  • Remove provisions pertaining to the use and calculation of the Net Present Value of institutional loans for the calculation of the 90/10 ratio for for-profit IHEs, because the provisions are no longer applicable;
  • Clarify that the Secretary will rely on the requirements established by an institution’s accrediting agency or State authorizing agency to evaluate an institution’s appeal of a final audit or program review determination that includes a finding about the institution’s classification of a course or program as distance education, or the institution’s assignment of credit hours;
  • Clarify that the Secretary may deny an institution’s application for certification or recertification to participate in the title IV, HEA programs if an institution is not financially responsible or does not submit its audits in a timely manner; and
  • Clarify that an institution is not financially responsible if a person who exercises substantial ownership or control over an institution also exercised substantial ownership or control over another institution that closed without executing a viable teach-out plan or agreement.


U.S. Department of Education Publishes State Authorization Rule

On November 1, 2019, the U.S. Department of Education published the Final Regulations for accreditation and state authorization. This notice focuses on the updates to State Authorization of Distance and Correspondence Education. The effective date will be July 1, 2020, with early implementation allowed at the discretion of each institution or agency for sections § 600.2, § 600.9, § 668.43 and § 668.50 (described herein). The rule is the product of consensus negotiated rulemaking. The regulations address the role of reciprocity agreements, update the language regarding student location, clarify required state authorizations for distance education programs, and revise consumer disclosure requirements. Continue reading “U.S. Department of Education Publishes State Authorization Rule”

U.S. Department of Education Issues Final Borrowers Defense to Repayment Regulation

This afternoon the U.S. Department of Education posted the pre-publication notice of the Final Borrowers Defense to Repayment regulation which rewrites the regulations promulgated under the Borrower Defense to Repayment provision of the Higher Education Act (HEA). A summary of the rule can be found here. The official version will be published in the Federal Register. Continue reading “U.S. Department of Education Issues Final Borrowers Defense to Repayment Regulation”

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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