U.S. Department of Education Delays Implementation of New Third-Party Servicer Guidance

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Client Alert
(April 20, 2023)

The U.S. Department of Education (“Department”) last week announced an indefinite delay in the implementation of its new third-party servicer guidance originally issued on February 15, 2023, and last amended on February 28, 2023 (“TPS Guidance”).  The announcement in the form of a blog post by Under Secretary of Education James Kvaal on April 11, 2023, confirmed that the Department had received more than 1,000 comments and that it will take time to review those comments before considering revisions to the TPS Guidance.

The Department did not announce a new effective date.  It confirmed, however, that the effective date will be at least six months after the publication of the revised TPS Guidance and that deadlines for audit and contract requirements would be in fiscal years beginning after the effective date of the reporting requirements.

The Department also has clarified certain aspects of the TPS Guidance that had raised significant concern among institutions of higher education and entities that contract with or provide services to those institutions.  Importantly, the Department has confirmed that it does not consider contracts addressing the following activities to create third-party servicer relationships:

• Study abroad programs.
• Recruitment of foreign students who are not eligible for Title IV funding.
• Clinical and externship opportunities.
• Agreements between Title IV-eligible institutions to share courses or employees to teach courses or process student aid.
• Dual enrollment programs with high schools and local education agencies.
• Local police departments that help to compile and analyze crime statistics, unless the police department writes or files a report on behalf of an institution.

The Department noted that it may identify other contractual arrangements that do not create third-party servicer relationships.  The Department also announced that it would remove the provision included in the original TPS Guidance that prohibited institutions from entering into third-party servicer contracts with entities with foreign ownership.  Finally, the Department will consider changes that would clarify and narrow the scope of guidance on issues such as software and computer services, student retention, and instructional content, which the Department indicated had cause confusion and concern.

The original TPS Guidance rescinded earlier third-party servicer guidance found in Dear Colleague Letters GEN-12-08, GEN-15-01, and GEN-16-15.  The Department’s April 11 announcement, however, confirmed that the prior guidance remains in effect at least until the revised TPS Guidance is released.

Please let us know if you have any questions regarding the third-party servicer issue or if we can assist you in any other matters.

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Maynard Nexsen is a full-service firm with attorneys experienced in all regulatory and operational aspects of higher education, including federal and state oversight, accreditation, cybersecurity, employee and benefits issues, and real estate concerns.

Roger Swartzwelder advises regionally and nationally accredited institutions of higher education, investors, and accrediting agencies regarding legal, administrative, regulatory, accreditation, transaction and operational matters.

Brandon Sherman advises postsecondary institutions, accrediting agencies, and education investors on matters pertaining to federal financial aid eligibility, accreditation, cybersecurity, and Title IX.