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IMPORTANT UPDATES – Third-Party Servicer and Recruitment Compensation Updates from US Department of Education | Policy Matters (February 2023)

February 22, 2023

Major Updates

NOTE: This post has been updated since its original publishing to include extended deadlines provided by the Department of Education.

Some substantial items for UPCEA members to review from the US Department of Education were announced last week.

The long-expected Dear Colleague Letter (DCL) on Third-Party Servicers (TPS) and public comment periods on TPS guidance as well as the incentive compensation ban with these providers, including Online Program Managers (OPMs) on bundled services has been released. The Department will conduct virtual listening sessions on incentive compensation on March 8th and 9th to hear community feedback. We encourage UPCEA members to take part in commenting and attending those sessions as well as providing written comments which can be submitted until March 16th. Separately, but very relatedly, the Department has updated Third-Party Servicer guidance to clarify when a servicer is considered as such, and would be privy to additional data and regulation with compliance for federal rules and regulations. The definitions have been broadened from previous statements, and apply to any arrangement that helps coordinate Title IV (Federal Financial Aid) eligibility, including recruiting, teaching and learning, as well as software providers. Comments are open until March 30th for Third-Party Servicer guidance. The guidance is effective immediately , and the Department is asking institutions to report any arrangements that have not been previously reported to them by May 1st (now September 1, per 2/28 updated DCL) of this year. These actions come as there has been increased scrutiny on how Third-Party Servicers, such as Online Program Managers (OPMs), recruit students for programs, especially after being highlighted in a 2022 GAO report on the topic.

The previous guidance on the incentive compensation ban, a 2011 Dear Colleague Letter from the Department, provided an exception which allowed for bundled services, including recruitment, to be offered by third parties to institutions of higher education. This was seen as being on shaky legal ground, as the Higher Education Act has an explicit prohibition of incentive compensation for Third-Party Servicers working with institutions. The 2011 Dear Colleague Letter guidance was even seen as illegitimate as admitted by one of the authors of the guidance themselves. The Department is now gathering comments and holding a public listening session, to gain insights from a range of stakeholders on the benefits and disadvantages of the exception, how the guidance has impacted institutions and students, and how compliance can be ensured and how they may treat incentive compensation activities moving forward.

In their secondary but related action, the Department issued updated guidance via a separate Dear Colleague Letter on Third-Party Servicers, and provided a detailed breakdown on what the Department deems as actions that would be taken that would qualify a Third-Party Servicer as such (and then be privy to additional scrutiny) in participation of Title IV (Federal Financial Aid) programs. The guidance goes on to include a breakdown of how to differentiate between whether an entity is a Third-Party Servicer in some key items like Computer Services/Software and Record Maintenance, Instructional Content, Consulting and Auditing, among others. The Department has issued the following statement as to why they are revising the guidance:

“In particular, the Department is revising its guidance concerning the functions of student recruiting and retention, the provision of software products and services involving Title IV administration activities, and the provision of educational content and instruction. The Department is aware that a large and growing industry has developed to provide one or more of these services as a means of transitioning academic programs into a distance education format and expanding enrollment.”

While the focus has largely been in regards to OPMs, the guidance relates to any Third-Party Servicer agreement, on-campus, or online. While this opportunity for enforcement has been within the Department’s legislatively granted authority for years, enforcement and guidance has not been executed in this way by past administrations. The Department itself quotes many, different, applicable legislatively-derived public statutes which grant it the authority to enforce such provisions. They also reiterated based on the existing public law, they expect institutions to provide the Department notification within 10 days of any modification or end of a contract or entering into of a contract with a new Third-Party Servicer.

Also the Department stated the focus of liability of the institution is broader than just those items related to Third-Party Servicers (highlighted emphasis our own):

Regardless of whether an entity is considered a TPS for Title IV purposes, the institution has a fiduciary responsibility to ensure that any contracts, policies, procedures, products, or systems used by the institution or its contractors/providers are compliant with applicable laws and regulations. This includes the requirements in 34 C.F.R. § 668.24(f) that an institution be able to access all records (paper or electronic) created or maintained by a third party and to make those records readily available to the Department for review.”

And, that these arrangements are not able to contract with a Third-Party Servicer:

“To protect the interests of institutions, taxpayers, and students, an institution may not contract with a TPS to perform any aspect of the institution’s participation in a Title IV program if the servicer (or its subcontractors) is located outside of the United States or is owned or operated by an individual who is not a U.S. citizen or national or a lawful U.S. permanent resident. This prohibition applies to both foreign and domestic institutions.”

The impacts to UPCEA members may be significant. UPCEA will continue to keep our membership updated of these developments, but we encourage you to bring this information to the attention of your institution’s government affairs office, compliance officers, and president’s office for additional scrutiny of gathering comments on the proposals. We also have identified a few immediate actions to take in light of these updates. 


Immediate Actions for Your Institution or Organization

  1. Take an inventory of all of your engagements with third-party contracts. 
    • As this guidance is in immediate effect, take a close look at the new guidance and make sure you have given to the Department the notification of all of your Third-Party Servicers by filling out the Third-Party Servicer form ahead of the May 1 (now September 1, per 2/28 updated DCL) deadline.
        • If you are unsure if the arrangements you have would be privy to Third-Party Servicer Guidance, the Department has an email address to which you can direct these questions at [email protected].
  1. Review the updated guidance on Third-Party Servicers and consider making written public comments before March 17 (now March 30).
  2. Review the Department’s asks on incentive compensation (the nine specific questions under “Supplemental Information”)
    • Consider either: 
      • Taking part in the Public Listening sessions, either as a speaker commenting on these items, or as an audience member in listen-only mode.

        To take part, the Department notes: “The virtual listening sessions will be held from 1 p.m. to 4 p.m. (EST) on March 8 and 9. Individuals who would like to present comments of up to three minutes must register by sending an email to [email protected] no later than 12 p.m. (EST) on the business day prior to the listening session at which they want to speak. The message should include the name of the speaker, the email address of the speaker, and one or more dates and times during which the individual would be available to speak. Individuals who want to observe the listening sessions are also required to register for each day in which they wish to observe.”

      • Sending written comments to the Department by March 16.

UPCEA will continue to update you on any changes or updates to these topics. Feel free to also comment on our recent CORe thread with your institutional or personal perspectives.


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