Department Of Education Issues Guidance Broadening Oversight Of Agreements between Districts And Third-Party Servicers

On February 15, 2023, the Department of Education (DOE) issued guidance (Guidance) expanding the DOE’s oversight and regulation of agreements between districts receiving Title IV funding and third-party servicers that administer the Title IV programs. The Guidance expands the DOE’s existing interpretation[1] of ‘third-party servicer’ by including entities that perform functions or services necessary to provide Title IV-eligible educational programs. In elaborating on this addition, the Guidance states that “entities performing the functions of student recruiting and retention, the provision of software products and services involving Title IV administration activities, and the provision of education content and instruction are defined as third-party servicers” that now requires the oversight of the DOE.

This Guidance will require districts to carefully review their existing contracts to assess whether any services provided by a third party will now be subject to the DOE’s oversight. Contracts deemed to fall within the scope of the third-party servicer regulations will need to be reported to the DOE and modifications will likely need to be made to the existing contracts.

New Functions and Services Subject to DOE Regulation

Vendors that provide the following functions and services will now be considered ‘third-party servicers’ under the new Guidance[2]:

1. Student Recruitment and Application Related Services

• Interacting with prospective students for purposes of recruiting;
• Processing admissions applications;
• Establishing or modifying admissions standards; or
• Processing financial aid applications.

2. Retention of Students
   • Monitoring academic engagement and daily attendance;
   • Conducting outreach to students regarding attendance; or
   • Responding to inquiries from students and families regarding resources to maintain enrollment.

3. Computer Services/Software and Record Maintenance
   • Collecting, reviewing, and/or maintaining the information and/or documentation necessary to support student eligibility determination or disbursement of Title IV funds; or
   • Providing computer services or software in which the provider has access to, or has control over systems needed to administer Title IV programs, including but not limited to, financial aid management, recruitment, enrollment, admissions, registration, billing, and learning management.

4. Provision of Instructional Content
   • Establishing requirements for the completion of courses;
   • Establishing whether course requirements have been satisfied;
   • Delivering instruction or mandatory tutoring;
   • Assessing student learning; or
   • Developing curricula or course materials (unless the district maintains full control and delivers instruction itself).

Third-Party Servicer Qualifications

Due to the expansion of the oversight, it is important to note what entities may or may not perform the above-outlined services. According to the regulations and the Guidance, third-party servicers must be qualified to enter into contracts with districts. Specifically, districts may not contract with a third-party servicer that (1) was limited, suspended, or terminated by the Secretary of Education within the preceding five years; (2) has during the last two audits, an audit finding that resulted in the servicer being required to repay an amount greater than five percent of the funds administered under the Title IV programs for any award year; or (3) was cited during the preceding five years for failure to submit audit reports required under Title IV of the Higher Education Act in a timely fashion. Additionally, the third-party servicer may not be located outside of the United States or be owned or operated by an individual who is not a United States citizen or a national or lawful permanent resident.

Taking Action

This Guidance will not become effective until September 1, 2023. Further, additional revisions may be made to the Guidance subject to comments received from districts and other impacted institutions during the comment period. However, districts should begin reviewing their existing contracts to see if any of the services provided under those contracts will put the provider within the newly expanded definition of third-party services. The Guidance further identifies that if a district does not know if a service provider is subject to third-party servicer requirements, the district should contact its School Participation Division.

Please contact LCW if you have any questions about, or need assistance complying with, the new Guidance.

[1] Existing DOE guidance interpreted the definition of the third-party servicer to cover entities that provide functions or services necessary: (1) for the district/institution to remain eligible to participate in the Title IV Programs; (2) to determine a student’s eligibility for Title IV funds; (3) to account for Title IV funds; (4) to deliver Title IV funds to students; and (5) to perform any other aspect of the administration of the Title IV programs or comply with the statutory or regulatory requirements associated with those programs.

[2] The Guidance also provides examples of services and functions that, if performed, would not qualify a vendor as a third-party servicer and states that the list is not exhaustive.