Many Schools Not Meeting Third-Party Servicer Requirements, ED Says

Karen McCarthy, NASFAA Federal Relations staff

A significant number of institutions have failed to report, update, and/or have reported incorrect third-party servicer information on the institution’s Application for Approval to Participate in the Federal Student Financial Aid Programs (E-App), according to Dear Colleague Letter (DCL) GEN-15-01. In light of misinformation and confusion in the aid community about the third-party servicer requirements, the DCL reminds schools of their responsibilities when entering into contracts with third-party servicers. 

First and foremost, the DCL explains that a third-party servicer is any individual or entity that contracts with or performs work on behalf of an institution to administer any aspect of an institution’s Title IV responsibilities, including but not limited to: 

  • Processing of student financial aid applications, including Free Application for Federal Student Aid (FAFSA) or pre-FAFSA completion services performed on behalf of an eligible institution;
  • Collecting, reviewing, and/or maintaining supporting documentation required to process Title IV funds;
  • Awarding, certifying, originating, and/or disbursing Title IV funds;
  • Delivering Title IV credit balance refunds to students or parents (via cash, check, Automated Clearing House (ACH), debit card, or other means);
  • Providing financial aid counseling, including assistance to students or parents in person, over the phone, or by any electronic means, including operation of call centers;
  • Performing default prevention/management functions for Direct Loan, Federal Family Education Loan, and/or Perkins Loan programs, including cohort default analysis, enhanced loan counseling, delinquency assistance, development/implementation of a default management plan, and/or other default prevention outreach activities;
  • Providing entrance and exit loan counseling, including in person, by mail, or electronically;
  • Performing Federal Perkins Loan servicing or collections;
  • Financial aid consulting, including financial aid staffing, interim management, processing support, and/or development and maintenance of written policies and procedures;
  • Preparing and/or submitting required reports including enrollment reporting to the National Student Loan Data System, the Integrated Postsecondary Education Data System, Campus Crime and Security, and the Fiscal Operations Report and Application to Participate reporting; and
  • Preparing or disseminating required consumer information disclosures, including general, campus crime, drug and alcohol prevention, graduation rates, placement rates, and gainful employment disclosures.

If an institution enters in an arrangement with a third-party to perform any of these functions, then the arrangement meets the definition of a third-party servicer arrangement, triggering requirements related to contracts, reporting, FERPA, and information security, which are also explained in the DCL.


Publication Date: 1/13/2015

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