This analysis was prepared by Venable, LLP, on behalf of AACOM.

The U.S. Department of Education recently published a Dear Colleague Letter (DCL) that significantly expands its interpretation of the definition of “third-party servicer” (TPS) to include a new array of vendors providing student recruiting and retention services, certain software products and services linked to Title IV Federal Student Aid administration activities, and educational content and instruction. Where colleges and universities contract with vendors for these products and services, both the schools and vendors must comply with TPS rules. 

The guidance in this Dear Colleague Letter will not become effective until September 1, 2023. Reporting requirements will also go into effect on that date.

The regulations governing TPSs are found at 34 C.F.R. §§ 668.2, 668.23, and 668.25.

Covered TPS Activities

The Department indicated that it reviewed numerous contractual arrangements between institutions and outside entities and determined that there was a need for an updated list of functions and activities that fall within the scope of the TPS requirements. In particular, the Department revised its guidance concerning the functions of student recruiting and retention, the provision of software products and services involving Title IV administration activities, and the provision of educational content and instruction.

A TPS is now interpreted to mean “any entity or individual that administers, any aspect of an institution’s participation in the Title IV programs. 34 C.F.R. § 668.2 (definition of a third-party servicer). In general, a TPS performs functions or services necessary—

1. For the institution to remain eligible to participate in the Title IV programs;
2. To determine a student’s eligibility for Title IV funds;
3. To provide Title IV-eligible educational programs;
4. To account for Title IV funds;
5. To deliver Title IV funds to students; or
6. To perform any other aspect of the administration of the Title IV programs or comply with the statutory and regulatory requirements associated with those programs.”

Additionally, an institution may not contract with a TPS to perform any aspect of the institution’s participation in a Title IV program if the servicer (or its subcontractors) is located outside of the United States or is owned or operated by an individual who is not a U.S. citizen or national or a lawful U.S. permanent resident. This prohibition applies to both foreign and domestic institutions.

The DCL provides the following (non-exhaustive) examples of activities that are now considered covered:

1. Recruitment- and Application- Related Activities, including interacting with prospective students for recruiting or securing enrollment (e.g., providing prospective students with information on educational programs, application and document requirements, deadlines, and the enrollment process); assisting students with applications and enrollment (e.g., counseling); processing admissions applications; establishing or modifying admission standards; processing Title IV student financial aid applications; and providing Title IV counseling.
2. Student and Institutional Eligibility, including determining student Title IV eligibility; processing, awarding, certifying, originating, and/or approving Title IV awards and/or disbursements; administering/proctoring ability-to-benefit tests or administering any aspect of an eligible career pathway program; and preparing/submitting required applications or reports, such as an institution’s Application for Approval to Participate in the Federal Student Financial Aid Programs (E-App), Fiscal Operations Report and Application to Participate (FISAP), Integrated Postsecondary Education Data System (IPEDS) reports, or Campus Safety and Security data reports, and/or reporting on behalf of an institution to the National Student Loan Data System (NSLDS).
3. Computer Services/Software and Record Maintenance, including collecting, reviewing, and/or maintaining information and/or documentation necessary to make or support eligibility determinations or to disburse Title IV aid; or providing computer services or software in which the provider has access to, or maintains control over, the systems needed to administer any aspect of the Title IV programs, including recruitment, enrollment, admissions, registration, billing, and learning management.
4. Instructional Content, including establishing requirements for the completion of a course and/or evaluating whether a student has met those requirements; delivering instruction or mandatory tutoring; assessing student learning; or developing curricula or course materials unless the institution maintains full control of the curriculum/materials and delivers the instruction itself.

The DCL also clarifies services related to consumer information, default prevention, delivery of Title IV funds, and consulting and auditing may be covered and provides examples. 

Compliance Obligations

By May 1, 2023, schools must report any TPS arrangements that have not previously been reported. Schools must also (1) ensure TPS contracts include specified terms; (2) obtain a signed certification form from each TPS; and (3) ensure their E-App is updated to identify each TPS. Upon request, a school must provide a copy of its contract (and any modifications) to the Department, which could, conceivably, expose such contracts to public release under the federal Freedom of Information Act (FOIA).

Vendors covered by the Department’s new interpretation of a TPS (1) are responsible for compliant contracts; (2) must submit to the Department or update a TPS Data Form; and (3) must meet annual audit requirements. TPSs are also subject to obligations, including incurring joint and several liability with schools related to Title IV activities, heightened data privacy and security responsibilities, and reporting to the Department’s Office of Inspector General information related to an institution engaging in criminal misconduct in connection with Title IV programs.