U.S. Department of Education Indefinitely Delays Expanded Third-Party Servicer Requirements

NOTE: On May 16, 2023, the Department formalized its delayed implementation of the February TPS guidance through Dear Colleague Letter GEN-23-08 (May DCL). As previewed by the April blog announcement discussed below, the May DCL also rescinded the Department’s earlier policy prohibiting contracts between colleges and foreign-owned or foreign-operated TPS entities.

On April 11, 2023, the U.S. Department of Education (ED) indefinitely delayed the effective date of guidance regarding the scope of third-party servicer (TPS) requirements that it first published on February 15 and then updated on February 28, 2023. Our prior alert summarizes that guidance, which substantially expanded ED’s regulatory oversight of third-party service providers and other academic and technology partners to higher education institutions.

In a blog post from ED Under Secretary James Kvaal announcing the delayed implementation of guidance, ED tacitly acknowledged the unprecedented pushback that it received from the higher education community, noting that its February guidance had elicited over 1,000 comments and that it would need sufficient time to carefully review those comments and consider revisions to the guidance. The post rescinded the September 1, 2023, effective date of the February guidance, and further stated that the effective date of any revised guidance will be at least six months after its publication. Additionally, ED indicated that the deadlines for revising TPS contracts and performance of TPS audits will follow in fiscal years that begin after the effective date for institutional TPS reporting requirements.

In addition to indefinitely delaying the effective date of its February guidance, ED addressed certain concerns the higher education community had raised in connection with its substantive scope and clarified that ED will not consider a contractor or vendor engaged in the following activities to constitute a TPS for Title IV regulatory purposes:

• Study abroad programs;
• Recruitment of foreign students not eligible for Title IV federal student 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 federal student aid; and
• 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 announcement further indicates that ED may, as it completes its review of the comments received and in advance of more comprehensive TPS guidance, issue additional clarifications on activities that fall outside the scope of current or future TPS requirements. Specific activities for which ED suggests additional clarifying guidance is likely, but which for now should be assessed solely under ED’s pre-February TPS guidance, include software and computer services, student retention and instructional content.

ED also stated that it intends to eliminate the restriction from certain 2016 guidance on foreign ownership of TPS entities, although the restriction appears to remain in place for entities that were within the scope of TPS requirements before the February guidance. This topic is expected to be considered as part of an announced negotiated rulemaking for the fall of 2023 that will consider amendments to, among other things, existing TPS regulations.

Importantly, the delayed implementation of the February guidance means that the previous ED guidance on TPS matters that it was meant to replace, specifically Dear Colleague Letters GEN 12-08, GEN 15-01, and GEN 16-15 as amended by a March 8, 2017 Electronic Announcement, are once again effective and will remain in effect until ED further revisits TPS requirements.

Please do not hesitate to contact John Przypyszny, Jonathan Tarnow, Cindy Irani or Sarah Pheasant if you have any questions regarding this matter or other education regulatory matters.