NAICU Washington Update

Higher Education Community Urges Administration to Rescind Guidance on Third-Party Servicers

March 31, 2023

NAICU joined the higher education community in drafting and submitting comments regarding the Department of Education’s recent guidance on third-party servicers (TPSs).

The new guidance dramatically expands the Department’s interpretation regarding the types of entities that are considered to be TPSs. While the guidance appears designed to strengthen oversight of online program management (OPM) companies, intentionally or not, its broad sweep appears to affect far more institutional vendors than just OPMs and has thus generated significant concerns due to its expansive scope and potentially serious impact on campus operations. 

The community comments urge the Department to rescind the guidance immediately in light of these concerns, which include:
  • The guidance dramatically expands the number of entities subject to TPS requirements and will disrupt important educational services that support students. Traditionally, statutory and regulatory requirements governing TPSs have applied only to companies that directly help institutions administer federal financial aid. The new interpretation now encompasses entities that perform a wide array of functions “necessary to perform any other aspect of the administration of the Title IV programs or comply with the statutory and regulatory requirements associated with those programs.” This new interpretation exceeds the Department’s statutory and regulatory authority, dramatically expands the number of entities subject to TPS requirements, and will disrupt important educational services that support students, such as recruiting, retention, or the delivery of academic programs, educational content, or instruction. 
  • The guidance creates a significant burden for institutions and outside entities that disrupts the ability of institutions to provide critical educational services. Requirements governing TPSs include, but are not limited to, mandates that they must be based in the U.S. (including subcontractors), submit annual compliance audits, and agree to be held jointly and severally liable with the institution for any applicable statutory and regulatory violations. These requirements impede the ability of institutions to contract with outside entities that specialize in providing services in a cost-effective manner. Some providers will pass these compliance costs onto institutions or be unwilling to continue providing services, thus forcing institutions to switch providers. Campuses are already engaged in the costly and time-consuming process of reviewing their relationships with vendors.  
  • The guidance raises serious concerns regarding the prohibition on an institution contracting with a TPS if the servicer is located outside of the U.S. Due to this prohibition, the guidance would result in a dramatic reshaping—and likely termination—of international education activities, including study abroad programs, academic and instructional partnerships with foreign universities, the ability of certain foreign universities to enroll American students receiving Title IV aid, and the ability to enroll international students to study in the U.S. using foreign-based recruiters. A variety of education technology software and IT services that are provided by non-U.S.-located companies would also be affected, including learning management systems, administrative enterprise resource planning systems, registration and course scheduling systems, publication of e-textbooks, and production of instructional content in accessible formats.
In addition to encouraging the Department to rescind the guidance, the comment letter also recommends that the agency consider alternative measures that would better focus on OPMs and other entities of concern to the Department, perhaps via the recently announced negotiated rulemaking session that will discuss changes to regulations governing TPSs, among other issues.

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