ED Issues Guidance on Misrepresentations by Third-Party Servicers

On January 16, 2025, the U.S. Department of Education (ED) published a notice of interpretation letter for Title IV-eligible higher education institutions regarding their obligation to comply with the Higher Education Act (HEA) and its regulations on misrepresentation.^Footnote1 The letter is intended to remind institutions that requirements to avoid misrepresentation are also applied to statements made by third-party entities (referred to as "external service providers" in the notice) engaged by Title IV institutions. It specifically names online program managers (OPMs) as third parties that must comply with misrepresentation requirements.

Background

In February 2023, the Federal Student Aid (FSA) office at ED published a "Dear Colleague Letter" (DCL) that provided a new definition for the term "third-party servicer" (TPS). The new definition greatly expanded on the definition set by the preexisting regulation.^Footnote2 Specifically, the letter defined TPSs as "providers of 'functions or services necessary . . . to provide Title IV-eligible educational programs.'" Prior TPS regulations applied only to outside firms servicing institutions' federal student aid needs. At first glance, the DCL appeared to be an effort by ED to extend oversight to OPMs, but in practice, the guidance implemented broad language that extended TPS regulatory requirements to any contractual relationship an institution might have with IT service providers. Given the vast impact this new guidance would have on institutions and their outside service providers, the DCL was met with quick opposition. In March 2023, EDUCAUSE and other stakeholders submitted comments urging ED to withdraw the letter.^Footnote3

In April 2023, then Under Secretary James Kvaal published a blog post announcing a delay to the effective date of the DCL guidance.^Footnote4 Kvaal stated that ED would issue revised guidance with a new effective date after reviewing the thousands of comments received in response to the DCL. He also noted that it would be more appropriate to consider changes to TPS enforcement through negotiated rulemaking. However, ED was not able to issue a proposed rule through negotiated rulemaking before the end of the Biden administration.

Notice of Interpretation

Shortly before the Biden administration ended, FSA issued the abovementioned notice of interpretation letter in what appears to be a final attempt to take action on third-party servicer guidance. This letter differs from the February 2023 guidance in that it mostly reiterates misrepresentation requirements consistent with the statutory and regulatory language under the HEA, but it clarifies that these requirements extend to "external service providers." Specifically, the letter highlights three types of statements that could qualify as misrepresentation if made by an eligible institution or its external service provider:

1. Inaccurately identifying an individual employed by an external service provider as being employed by the eligible institution
2. Inaccurately presenting a sales representative or recruiter employed by an eligible institution or an external service provider as an academic advisor (e.g., referring to them as a "counselor")
3. Describing a program, or any of its components or resources, provided in substantial part by an external service provider as "the same as" a corollary residential or campus-based version of the program provided by the eligible institution^Footnote5

The letter provides examples of misrepresentations for each of the three statement types listed above. ED highlights numerous incidents related to false or misleading attribution of employment or status. For example, ED states that OPM employees have sent emails to prospective or enrolled students in OPM-provided programs that implied institutional employment without disclosing their affiliation with or employment by the OPM. The letter explains that this false attribution of employment status could constitute misrepresentation.^Footnote6

The letter also clarifies, consistent with existing law, that an eligible institution engaged in substantial misrepresentation could face fines or other actions to limit, suspend, or terminate its access to Title IV funds.^Footnote7

Looking Ahead

For now, the letter serves as a reminder for institutions about their existing obligations to avoid misrepresentation and clarifies that these obligations extend to an institution's third-party servicers. Whether or not the Trump administration's Department of Education will rescind this notice remains to be seen. EDUCAUSE will continue to monitor third-party servicer regulations and guidance.

Notes

1. Nasser Paydar, "(GEN-25-01) Notice of Interpretation Regarding Misrepresentations by Third-Party Service Providers Engaged by an Institution of Higher Education," U.S. Department of Education Office of Federal Student Aid, January 16, 2025. Jump back to footnote 1 in the text.↩
2. Federal Student Aid, "(GEN-23-03) Requirements and Responsibilities for Third-Party Servicers and Institutions (Updated November 14, 2024)," U.S. Department of Education, February 15, 2023. Jump back to footnote 2 in the text.↩
3. EDUCAUSE letter to Miguel Cardona, Secretary, U.S. Department of Education, "Regarding Docket ID ED-2022-OPE-0103," March 7, 2023. Jump back to footnote 3 in the text.↩
4. Bailey Graves, "ED Delays Effective Date of Third-Party Servicer Guidance," EDUCAUSE Review, May 2, 2023. At the time of publication, Kvaal's letter is no longer available on ED's website. Jump back to footnote 4 in the text.↩
5. Paydar, "(GEN-25-01) Notice of Interpretation Regarding Misrepresentations." Jump back to footnote 5 in the text.↩
6. Ibid. Jump back to footnote 6 in the text.↩
7. Ibid. Jump back to footnote 7 in the text.↩

Bailey Graves is Senior Associate at Ulman Public Policy.