Key insights
- Colleges and universities may face significant changes if a new federal rule affecting third-party servicers subject to Title IV goes into effect.
- The U.S. Department of Education's new definition includes online program managers (OPMs) and other entities that have not been considered third-party servicers in years prior.
- If determined to be a TPS, colleges and universities must review of all existing contracts to determine if they contain the appropriate language the ED requires.
Might your college or university have to abide by the new rules?
The U.S. Department of Education (ED) has proposed expanding its definition of third-party servicers (TPS) that would be subject to Title IV. If approved, this change could have a significant impact on higher education.
Proposed new ED rule
On February 28, 2023, ED updated the Dear Colleague Letter regarding third-party servicers. ED issued guidance that significantly expanded the definition of a TPS in Title IV of the Higher Education Act (HEA) of 1965 as amended, and its implementing regulation 34 C.F.R. § 668.2.
What is a third-party servicer?
A TPS is any individual or entity contracted on behalf of an institution to administer, through manual or automated processing, any aspect of an institution’s responsibilities under the Title IV, HEA programs. At a high level, some functions, or services a TPS performs are to:
- Maintain an institution’s eligibility to participate in Title IV funds
- Determine a student’s eligibility to receive Title IV funding
- Account for and deliver Title IV funds to students
- Perform any other aspect of the administration of Title IV programs or adhere to regulatory requirements associated with Title IV programs
More specifically, some of the Title IV responsibilities a TPS may perform might include processing financial aid applications, collecting, and reviewing supporting documentation to process Title IV funds, providing financial aid counseling, or performing default prevention/management functions.
What changed?
Historically, third-party servicers were limited to entities that assisted in the administration of financial aid funds. However, ED’s new definition will include online program managers (OPMs) and other entities that have not been considered a TPS in years prior.
OPM providers work with colleges and universities to take their academic programs online — the use of which became very popular with the recent increase in virtual instruction. OPMs and other entities must now be considered a TPS if they participate in:
- Recruiting or student retention
- Providing software products and services involving Title IV administration activities
- Providing educational content and instruction
How does this affect my college or university?
With the expanded classification on who could now be considered a TPS, your institution can be impacted in the following ways:
- You must evaluate the relationship between your institution and possible third-party servicers.
- If determined to be a TPS, review all existing contracts to determine if they contain the appropriate language the ED requires.
- Third-party servicers must be reported on your institution’s Eligibility and Certification Approval Report (ECAR) within 10 days of entering a contract or substantially modifying an existing contract. Third-party servicers listed on your ECAR are subject to auditing procedures during your annual federal compliance audit.
- Higher education institutions are subject to the information security requirements established by the Federal Trade Commission (FTC) in the Gramm-Leach-Bliley-Act, and now must also take steps to verify their service providers can maintain safeguards over personal student information.
How we can help
CLA understands the significant administrative challenges this can create for your college or university. We encourage all institutions to comment on the guidance from ED with any concerns. Comments are due via Regulations.gov by March 29 and can be filed within docket ID ED-2022-OPE-0103