Third Party Servicers

Schools sometimes elect to contract out the performance of certain administrative functions. Such an arrangement may be temporary (for example, due to a loss of personnel) or ongoing where outside expertise and resources are deemed more efficient. In any case, the institution retains the responsibility for proper Title IV administration, and is held jointly or severally liable for any compliance exceptions. Regulations identify the functions that may be performed by a third party servicer, and define when performance of certain functions constitute third party status.

Related topics in this Index: Administrative Capability; Cash Management; Financial Responsibility of Institutions

Statutory Authority
- U.S. Code, Title 20—Education Chapter 28—Higher Education Resources and Student Assistance Subchapter IV—Student Assistance > Part G—General Provisions Relating to Student Assistance Programs § 1088(c) Definitions [HEA § 481(c)]
Regulations
- 34 CFR 668.25
- 34 CFR 668.164
ED References
See also Subtopics for more specific references.
NASFAA Publications and Articles
- NASFAA AskRegs Knowledgebase
  Search or browse the Knowledgebase for answers to regulatory and compliance questions submitted by financial aid administrators.
Subtopics
- Applicability of Title IV rules to third-party servicers
  - 668.1(a)
  - 668.25(c)(1)
- Arrangements with third-party servicers
  - Direct marketing
    
    668.164(f)(3)(vii)
  - Disclosure
    
    668.164(e)(2)(vi), (vii), (viii)
    
    668.164(f)(4)(iii), (iv)
    
    GEN-16-16
    
    Electronic Announcement, 7/3/17
  - Requirements
    
    668.164(e)(2), (3)
    
    668.164(f)(2)
    
    Federal Register, 10/30/15, p. 67127
  - Student choice
    
    668.164(d)(4)
    
    Federal Register, 10/30/15, pp. 67151 to 67155
    
    2020-21 FSA Handbook, Vol. 4, Ch. 2
  - Student consent
    
    668.164(e)(2)(i)
    
    668.164(f)(4)
    
    Federal Register, 10/30/15, pp. 67127, 67129, 67146 to 67147
    
    2020-21 FSA Handbook, Vol. 4, Ch. 2
  - Tier One (T1) arrangement
    
    668.164(e)
    
    Federal Register, 10/30/15, pp. 67126 to 67127, 67141 to 67144
    
    GEN-16-16
    
    2020-21 FSA Handbook, Vol. 4, Ch. 2
    
    Disclosure
    
    668.164(d)(4)(i)(B)(2)
    
    GEN-16-16
    
    Cash Management Electronic Announcement #8, 07/03/17
  - Tier Two (T2) arrangement
    
    668.164(f)
    
    Federal Register, 10/30/15, pp. 67127, 67144 to 67151
    
    GEN-16-16
    
    2020-21 FSA Handbook, Vol. 4, Ch. 2
    
    Disclosure
    
    668.164(d)(4)(i)(B)(2)
    
    GEN-16-16
    
    Cash Management Electronic Announcement #8, 07/03/17
- Audits
  See also top list entry for Audit and Program Review
- Billing and collection of Perkins loans
  - General rule
    
    674.48
    
    2020-21 FSA Handbook, Vol. 6, Ch. 5
  - Fidelity bond or comparable insurance requirements
    
    674.48(f)
- Contracts between an institution and a third-party servicer
  - General rule
    
    668.25
    
    GEN-16-15, Q&A CNT-Q1/CNT-A1
    
    2020-21 FSA Handbook, Vol. 4, Ch. 2
  - Changes to institution’s third-party servicers
    
    2019-20 FSA Handbook, Vol. 2, Ch. 5
  - Termination of contract
    
    668.25(c)(5)
- Default Reduction Assistance Program (DRAP) for Perkins loans
  - GEN-16-15, Q&A D&E-Q2/D&E-A2
  - 2020-21 FSA Handbook, Vol. 6, Ch. 5
- Disbursement functions
  - General
    
    668.164(f)(4)(vi)
    
    GEN-16-15, Q&A D&E-Q2/D&E-A2
    
    GEN-12-08
    
    Electronic Announcement, 5/18/12
    
    2020-21 FSA Handbook, Vol. 4, Ch. 2
  - Checking student’s eligibility at time of disbursement
    
    668.164(b)(3)
    
    2020-21 FSA Handbook, Vol. 4, Ch. 2
  - Student access to Title IV balances
    
    668.164(e)(2)(v)(C)
- Exit interviews for Perkins loans
  - 2020-21 FSA Handbook, Vol. 6, Ch. 5
- FERPA Rules
- Impact on administrative capability requirement to use adequate number of aid administrators
  - 668.16(b)(2)
- Notification (to ED) requirements
- Prohibited contracts due to past actions
  - General rules
    
    668.14(b)(18)(ii)
    
    668.25(a), (b)
    
    668.25(d)
    
    GEN-16-15, Q&A CNT-Q4/CNT-A4
  - Financial responsibility implications
    
    668.15(c)(1)
    
    668.15(d)(4)
    
    668.15(f)
- Referral of suspected illegal activity to OIG
  - 668.16(g)(2)
  - 668.25(c)(2)
- Responsibility for compliance
  - General rules
    
    668.1(a)
    
    668.164(e)(2)(ix)
    
    674.48(b)
    
    GEN-15-01
    
    GEN-12-08
    
    2019-20 FSA Handbook, Vol. 2, Ch. 3
    
    2019-20 FSA Handbook, Vol. 2, Ch. 4
  - Liability for improperly spent funds
    
    668.14(b)(25)
    
    668.23(f), (g)
    
    668.25(c)(3)
  - Penalties for noncompliance
    
    668.11(b)
- Third-party servicer (definition)
  - Definition
    
    668.2, Third-party servicer (1)
    
    GEN-16-15, Q&A D&E-Q1/D&E-A1, D&E-Q4/D&E-A4, D&E-Q5/D&E-A5
  - Excluded functions
    
    668.2, Third-party servicer (1)(ii)
    
    GEN-16-15, Q&A D&E-Q2/D&E-A2
  - Included functions
    
    668.2, Third-party servicer (1)(i), (iii)
    
    GEN-16-15, Q&A D&E-Q2/D&E-A2
  - Treatment of institutional employees
    
    668.2, Third-party servicer (2)
    
    GEN-16-15, Q&A D&E-Q2/D&E-A2
- Written arrangements between institutions
  - 668.5(d)(2)

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Third Party Servicers

Statutory Authority

Regulations

ED References

NASFAA Publications and Articles

Subtopics

Applicability of Title IV rules to third-party servicers

Arrangements with third-party servicers

Direct marketing

Disclosure

Requirements

Student choice

Student consent

Tier One (T1) arrangement

Disclosure

Tier Two (T2) arrangement

Disclosure

Audits

Billing and collection of Perkins loans

General rule

Fidelity bond or comparable insurance requirements

Contracts between an institution and a third-party servicer

General rule

Changes to institution’s third-party servicers

Termination of contract

Default Reduction Assistance Program (DRAP) for Perkins loans

Disbursement functions

General

Checking student’s eligibility at time of disbursement

Student access to Title IV balances

Exit interviews for Perkins loans

FERPA Rules

Impact on administrative capability requirement to use adequate number of aid administrators

Notification (to ED) requirements

Prohibited contracts due to past actions

General rules

Financial responsibility implications

Referral of suspected illegal activity to OIG

Responsibility for compliance

General rules

Liability for improperly spent funds

Penalties for noncompliance

Third-party servicer (definition)

Definition

Excluded functions

Included functions

Treatment of institutional employees

Written arrangements between institutions