- On May 16, 2023, the Department of Education issued an updated TPS Dear Colleague Letter formalizing the Department's April 11, 2023 blog post removing the September 1, 2023 effective date and the prohibition on contracts between institutions and foreign-owned and operated third-party servicers.
- On April 12, 2023, NAFSA's executive director and CEO Fanta Aw delivered remarks at a Department of Education virtual public hearing commending the Department for announcing plans to "clarify and amend the February 15 guidance regarding third-party servicers or TPS" and urging the department to continue to engage with partners in the higher education and international education sectors as it works to revise and finalize TPS guidance.
- In a blog post on April 11, 2023, the Department of Education provided an update to its February 15 Dear Colleague Letter regarding its expanded interpretation of third-party servicer (TPS) clarified contracts related to study abroad programs or the recruitment of international students will not be subject to third-party servicer requirements. The update announces an intention to remove the provision in the guidance document that pertains to foreign ownership of a third-party servicer and removed the September 1 effective date, moving the effective date to at least 6 months after publication of a revised final guidance letter. This update follows significant, coordinated feedback from NAFSA and other stakeholders from across the U.S. international education sector since the original guidance was announced in February 2023.
- On March 30, 2023, NAFSA submitted a comment letter to the Department of Education Secretary Miguel Cardona urging the department to rescind or defer the guidance and revise it in critical ways. NAFSA and its coalition partners were among the more than 1,000 commenters on the guidance.
The Department of Education (Department) published a Dear Colleague Letter, Requirements and Responsibilities for Third-Party Servicers and Institutions (Updated Feb. 28, 2023), asserting an expanded definition of “Third-party servicer” (TPS) that now includes third party 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 educational content and instruction.”
The TPS definition of TPS at 34 CFR 668.2(1) describes contracts “to administer, through either manual or automated processing, any aspect of the institution's participation in any Title IV, HEA program.” However, the regulatory definition also includes a list of functions all of which relate only to administrative, technical, financial or business “services” that support an institution’s handling of Title IV, HEA program funding. This, and the “manual or automated processing” language in the definition preface, had prior to this policy change been reasonably read to apply only to Title IV funds management.
What does it mean to be considered a Third-Party Servicer?
Being classified as a TPS also subjects an entity or individual to existing TPS reporting and auditing requirements, and to restrictions such as the requirement that a TPS cannot be "located outside of the United States or [be] owned or operated by an individual who is not a U.S. citizen or national or a lawful U.S. permanent resident." Here’s how the Dear Colleague Letter summarizes these obligations:
“To protect the interests of institutions, taxpayers, and students, 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.
If the Secretary determines that a TPS has not met the required standards of conduct or has violated its fiduciary duty, the Secretary may fine the servicer or limit, suspend, or terminate the servicer’s participation in the Title IV programs under 34 C.F.R. part 668, subpart G. A former TPS, once subjected to a termination action by the Secretary, may not enter into a written contract to administer any aspect of an institution’s participation in the Title IV programs unless financial guarantees and acknowledgements of joint and several liability under 34 C.F.R. 668.25(d)(2) are provided.”
A question of scope
In its Dear Colleague Letter, the Department admits that it “has not previously notified the community that the performance of these functions subjects an entity to TPS requirements,” and then proceeds to characterize this expansion of scope as simply “guidance to clarify.”
In fact, the Department’s expansion of the definition of Third Party Servicer to activities sharing no similarity whatsoever to the list included in its regulations, by default brings under the scope of this assertion many individuals and entities who are essential to the success of international education activities, but who are unrelated to the institution’s actual administration of Title IV funding.