Department of Education Issues Another Update on Third-Party Servicer Guidance
By Jill Desjean, Director of Policy Analysis
The Department of Education (ED) on Wednesday issued a new Dear Colleague Letter (DCL) related to colleges and universities contracting with third-party servicers to administer Title IV aid programs and other services, including recruiting, retention, and providing educational content.
The DCL does two things:
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Makes official ED’s intent to indefinitely delay institutional compliance with its February 2023 Requirements and Responsibilities for Third-Party Servicers and Institutions guidance until it has the opportunity to rewrite that guidance
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Rescinds prohibition on contracts between colleges and foreign-owned or operated third-party servicers
For background, in February of this year ED issued GEN-23-03, which greatly expanded upon previous interpretations of the types of functions provided by outside contractors that would cause them to be classified as third-party servicers. At that point, ED gave institutions a deadline of May 1, 2023 to comply with reporting all entities now considered third-party servicers per the guidance. ED later extended the compliance deadline to September 1, 2023.
ED received over 1,000 comments from the public expressing concern over the scope of the changes and exposing potential unintended consequences of such a broad definition of third-party servicer.
On April 11, 2023, ED announced in a blog post that it would be providing additional time for institutions to come into compliance, and removed the September 1, 2023 reporting deadline. Instead, ED indicated it would issue a revised DCL with an effective date at least six months after publication.
Wednesday’s DCL represents the formal announcement of the removal of that deadline, as first announced in the earlier blog post.
ED also used the opportunity to make a new announcement — that it is rescinding all guidance prohibiting contracts between colleges and foreign-owned or operated third-party servicers dating back to 2016.
ED shared as justification that it has learned through public comments that the landscape of third-party servicers has changed significantly since 2016 and that many more of these entities have some degree of foreign ownership than was the case in 2016. ED also noted that the guidance does not clearly define foreign ownership, and that ED may address that issue through negotiated rulemaking.
Publication Date: 5/18/2023
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