Education Department Delays Sept. 1 Effective Date of Dear Colleague Letter on Third-Party Servicers

April 12, 2023

On April 11, 2023, the U.S. Department of Education announced in a blog post that it will delay the Sept. 1, 2023, effective date of its Dear Colleague Letter on third-party servicers and institutions (DCL). The new effective date will be at least six months after the publication of any revised DCL. The Department did not specify when the revised DCL will be published.

The Department received more than 1,000 comments on this DCL and has already shared important policy decisions. According to the Department, contracts involving the following activities do not constitute third-party servicer relationships:

  • Study-abroad programs.
  • Recruitment of foreign students not eligible for Title IV aid.
  • Clinical or externship opportunities that meet requirements under existing regulations because they are closely monitored by qualified personnel at an institution.
  • Course-sharing consortia and arrangements between Title IV-eligible institutions to share employees to teach courses or process financial aid.
  • Dual or concurrent enrollment programs provided through agreements with high schools and local education agencies, which are exempt because they do not involve students receiving Title IV aid.
  • Local police departments helping to compile and analyze crime statistics, unless they write or file a report on behalf of an institution for compliance purposes.

In addition to these areas, the Department will consider “clarifying and narrowing the scope of the guidance in several areas, including software and computer services, student retention, and instructional content.”

The Department also intends to remove the prohibition on foreign ownership of a third-party servicer. The Department explained: “That provision was included in guidance issued in 2016 to protect taxpayers from uncollectable liabilities against a foreign owner. However, based on comments received, the number and breadth of servicers with at least some level of foreign ownership has expanded in the context of a changing higher education marketplace where institutions are adopting increasing numbers of technology-based solutions, and we believe the issue is more appropriately considered through negotiated rulemaking.”

While the Department is reviewing comments, it noted that previous DCLs GEN 12-08, GEN 15-01 and GEN 16-15 (as amended by the March 8, 2017, electronic announcement) remain in effect.

McGuireWoods’ education industry team is tracking updates to the DCL as the Department continues to provide clarity through blog posts and intends to issue a revised DCL. The team also is following the negotiated rulemaking sessions as the negotiators discuss and debate the definition of a third-party servicer, including whether this definition should include online program managers. Please contact any of the authors of this alert should you have any questions regarding the evolving landscape concerning third-party servicers. 

This alert provides an update to the firm’s February 21, 2023 alert, “Department of Education Guidance Expands Possible Liability for Private Companies That Contract with Higher Education Institutions.”