The US Department of Education (ED) published a blog post announcing that due to feedback received, the effective date of its Dear Colleague Letter (GEN 23-03) on April 11, 2023, which expands the definition of what’s considered to be a third-party servicer, will be postponed.
Specifically, the ED will delay the effective date of the guidance letter, and the September 1, 2023, date will no longer be in effect. The effective date of the 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.
Highlights of Post
The posting highlighted several key pieces of information as follows.
Ineligible Activities
There are several activities that generated hundreds of comments but aren’t subject to third-party servicer requirements under the guidance. The ED doesn’t 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 don’t 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 ED will identify any other services that fall into this category as comments are reviewed.
Provision for Foreign Ownership
The ED intends to remove the provision of the guidance document pertaining to foreign ownership of a third-party servicer. That provision was included in guidance issued in 2016 to protect taxpayers from uncollectable liabilities against a foreign owner.
Based on comments received, the number and breadth of servicers with at least some level of foreign ownership has expanded in the context of a changing higher education marketplace where institutions are adopting increasing numbers of technology-based solutions, and the ED believes the issue is more appropriately considered through negotiated rulemaking.
The ED 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 we continue to review comments and seek to balance the need for greater transparency and oversight against administrative burden, among other factors.
While the ED reviews the comments they’ve received 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.
Background
The ED released Dear Colleague Letter GEN-23-03 on February 15, 2023, to bring more transparency into the contractors who work closely with institutions of higher education on Title IV program management and delivery, particularly in the critical areas of recruitment and marketing.
The Dear Colleague Letter stated which services would be considered activities of third-party servicers, a designation that offers additional transparency into the work of these companies. This included categories of activities identified in previous guidance and several new categories of services that constitute the administration of Title IV aid programs.
This transparency gives the ED the ability to ensure that all entities engaged in the administration of Title IV aid programs are complying with applicable federal laws and regulations.
We’re Here to Help
Institutions and entities serving higher education institutions in any capacity administering Title IV student assistance programs should review the ED’s Dear Colleague Letter and blog post and assess what steps you may need to take to remain compliant. You can also contact your Moss Adams professional or visit our Higher Education Practice to learn more.