Washington Watch: ED delays effective date of third-party servicer guidelines


The U.S. Education Department (ED) announced Tuesday that colleges will not be expected to comply with updated guidance regarding their relationships with third-party servicers (TPS) by September 1. This provides welcome and needed relief for community colleges that have already begun reviewing their numerous contracts in preparation for the changes in ED’s TPS policies, announced in February.

The effective date for colleges to meet reporting requirements will now be six months following the department’s publication of a revised final guidance letter, and deadlines for audit and contractual requirements will not be until the fiscal year beginning after the effective date.

ED received more than 1,000 comments — including from the American Association of Community Colleges (AACC) — on its February 15 “Dear Colleague” letter (DCL), which vastly expanded the contractual relationships between colleges and outside entities subject to federal reporting and auditing requirements. AACC urged ED to consider the disruptive impact of the unnecessarily broad guidelines on community colleges by highlighting the hundreds of contracts that a number of institutions had identified.

Exempt activities

The department also provided additional information on the types of activities that are not considered to constitute TPS relationships, several of which AACC brought to ED’s attention in its comments. Notably for community colleges, these activities include clinical or externship opportunities; dual-enrollment programs; course-sharing arrangements between Title IV-eligible institutions; and recruitment of foreign students not eligible for Title IV aid.

Additionally, the final revised DCL will remove the prohibition on TPS contracts with foreign-owned entities, given the expanded number and breadth of servicers with some level of foreign ownership. ED plans to further consider this issue through the negotiated rulemaking process. That process is anticipated to begin in early fall.

Despite these changes along the lines suggested by AACC, outstanding issues remain. AACC will continue to be engaged on this issue and will update members on relevant developments.

About the Author

Alexis Gravely
Alexis Gravely is a legislative analyst at the American Association of Community Colleges.
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