ED Delays Effective Date of Third-Party Servicer Guidance

On April 11, U.S. Department of Education (ED) Under Secretary James Kvaal announced that ED will issue a revised guidance letter on the "Requirements and Responsibilities for Third-Party Servicers and Institutions" (GEN-23-03). The revised guidance letter will be released after ED concludes a "careful review" of the more than one thousand public comments submitted in response to its "Dear Colleague Letter" (DCL) published on February 15. Accordingly, ED announced that the previous effective date of September 1, 2023, is no longer in effect, and "the effective date of the revised final guidance letter will be at least six months after its publication."^Footnote1 Kvaal did not provide a timeframe for when stakeholders may expect a revised guidance letter.

EDUCAUSE has previously written about GEN-23-03 and the broad impact it would have had across the institutional and EDUCAUSE membership communities.^Footnote2 The guidance would have extended Third-Party Servicer (TPS) regulatory requirements to any contractual relationship an institution might have with a digital content, software systems, or services provider—requirements that carry new reporting mandates for institutions and reporting and compliance audit mandates for providers. The DCL also would have extended a ban on any foreign-owned or located firm serving as a TPS, which would have sparked considerable disruption in the overall higher education IT marketplace. Taken together, the DCL, as originally issued, would have greatly undermined e-learning at colleges and universities, and EDUCAUSE urged ED to withdraw and revise GEN-23-03 in our official comments submitted in early March.

Kvaal included several points of clarification in his April 11 update. Among them is ED's stated intention "to remove the provision of the guidance document pertaining to foreign ownership of a third-party servicer," adding that while "that provision was included in guidance issued in 2016 to protect taxpayers from uncollectable liabilities against a foreign owner . . . 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." He also noted that ED "will carefully review public comments on areas of confusion or concern and consider clarifying and narrowing the scope of the guidance in several areas, including software and computer services, student retention, and instructional content."^Footnote3

In addition, Kvaal lists several activities "that generated hundreds of comments but are not subject to third-party servicer guidance." These include study abroad programs, recruitment of foreign students not eligible for Title IV aid, clinical or externship opportunities, course-sharing consortia and arrangements between Title IV eligible institutions, dual or concurrent enrollment programs with high schools, and local police departments helping to compile crime statistics. Kvaal notes that ED will identify other activities and services that will not constitute third-party servicer relationships as it continues to review the comments received.^Footnote4

EDUCAUSE is encouraged that ED has heeded the concerns of the institutional community and its service providers and acted quickly to announce these revised next steps. The Policy team will be watching ED's forthcoming negotiated rulemaking closely, as that action will include a focus on TPS requirements. EDUCAUSE will keep members apprised of any ongoing developments related to GEN-23-03 and subsequent guidance revisions.

Notes

1. James Kvaal, "Update on the Department of Education's Third-Party Servicer Guidance," Homeroom (blog), U.S. Department of Education, April 11, 2023. Jump back to footnote 1 in the text.↩
2. Jarret Cummings, "EDUCAUSE and Third-Party Services Guidance," EDUCAUSE Review, March 16, 2023. Jump back to footnote 2 in the text.↩
3. Kvaal, "Update on . . . Third-Party Servicer Guidance," U.S. Department of Education, April 2023. Jump back to footnote 3 in the text.↩
4. Ibid. Jump back to footnote 4 in the text.↩

Bailey Graves is an Associate at Ulman Public Policy.