Washington Watch: New third-party servicer guidelines threaten institutions

U.S. Education Department (Photo: AACC)

The American Association of Community Colleges (AACC) is closely monitoring the implications of a recent Education Department “Dear Colleague” letter (DCL) that would alter its policies concerning third-party servicers (TPSs). If unchanged, the DCL could have a profound and negative effect on the manifold contractual relationships in which colleges routinely engage.

Under the February 15 letter, these relationships would now be subject to a battery of reporting and auditing requirements – and those requirements were not initially conceived with these entities in mind. It is regrettable that the department is choosing to implement these far-reaching changes without going through a formal rulemaking process. 

The Education Department’s (ED) expansion of the TPS requirements is largely driven by an explosion in the use of online program managers (OPMs) by institutions of higher education, including community colleges. OPMs were already a growing presence on college campuses, but their use was hastened by the Covid pandemic, during which online education course offerings mushroomed.

The Government Accountability Office issued a report in April 2022 asserting that ED needed to be much more aggressive in monitoring colleges’ arrangements with OPMs. The report emphasized that ED’s oversight policies on OPMs may have resulted in lax enforcement of the Higher Education Act’s statutory ban on compensating recruiters based on enrollment.

Much too broad

Unfortunately, from AACC’s point of view, the new guidelines capture an extraordinarily broad range of contractual relationships that colleges have with outside entities, touching upon most, if not all, organizations that have any role whatsoever in the academic activities of institutions. This includes the delivery of courses as well as any academic support functions that they might provide. If classified as a third-party servicer, both the outside entity, as well as the contracting institution must file extensive paperwork with ED, and the outside entity is subject to an annual compliance audit. Additionally, TPSs are prohibited from being foreign-owned or located.

The association has already written to ED on this issue, and the department has agreed to extend the comment period on the guidelines to March 30 and give institutions until September 1 to notify ED of their contracts that fall under the much-expanded list of TPS. However, for AACC, these changes are not sufficient.

AACC will file comments on the guidelines before the March 30 deadline. The comments will likely urge the department to rescind the massively disruptive and costly February 15 DCL and go back to the drawing board, working closely with institutions of higher education in the process to jointly identify and address the legitimate concerns raised over some OPMs. 

Likely areas of comment

Some of the points that the AACC communication will likely make include:

  • Nowhere in statute or regulations is there any suggestion that a TPS would include outside entities assisting with recruiting, retention or the delivery of academic programs, educational content or instruction, as the DCL would require. The expanded definition in the DCL is also inconsistent with prior guidance from the department on this topic.
  • The functions referred to in the DCL are so broad that they capture nearly every contract between an institution and an outside entity, regardless of whether the entity is an OPM and regardless of whether it has any involvement in the management of Title IV program funds. Academic programs and related support services cannot be logically construed to fall under the statutory definition of third-party servicer, and therefore represents, at minimum, regulatory overreach. 
  • It is unclear how the department intends to review or ensure proper oversight of the tens or hundreds of thousands of contracts and contract modifications with outside entities that under the DCL must now be reported to ED.

Possible scope of new policy

The outside entities that could fall under the new TPS guidelines include: 

  • Non-profit organizations and foundations that assist with the recruitment and retention of low-income students, first-generation students, or provide academic counseling and instructional support to these students.
  • Organizations partnering with institutions to provide mental health services to students. 
  • Local police departments helping to compile and analyze campus crime statistics.
  • A public institution providing services to another public institution in the same system where the institutions are structured as separate legal entities, or a private, nonprofit institution that is working on collaborative arrangements with other private, nonprofit or public institutions.
  • An institution that provides courses and instruction to students enrolled at another institution as part of an inter-college consortia.
  • Publishers providing e-textbooks and other electronic instructional materials and study aids, including accessible formats for students with low-vision or other vision challenges. 
  • Information technology companies that provide adaptive courseware solutions.
  • High schools and local educational agencies participating in dual or concurrent enrollment programs.
  • Businesses that partner with community colleges to deliver cutting-edge technical training programs. 

AACC will continue to keep member colleges informed about this key area. Please direct any questions to the Office of Government Relations.

About the Author

David Baime
David Baime is senior vice president for government relations at the American Association of Community Colleges.
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