Department of Education Announces Unprecedented Expansion of Regulatory Jurisdiction Over Service Providers for Institutions of Higher Education
February 16, 2023
Institutions of higher education (IHEs) and companies providing services to IHEs (including so-called online program managers or OPMs) should take careful note of two announcements by the U.S. Department of Education that could significantly impact the institution/service provider relationship and the Department’s oversight of that relationship.
First, and most immediately effective, the Department has revised its subregulatory guidance regarding the activities that make an entity providing services to an IHE a “Third Party Servicer” (TPS) for Title IV purposes. In a significant expansion over prior guidance, an OPM providing services to an IHE related to student recruiting and retention, providing software products and services involving Title IV administration activities, or providing educational content and instruction are now defined as a TPS. Being defined as a TPS comes with significant increased risk and compliance obligations by the third party and the institution. There is an open public comment period on this change through March 17, 2023.
Given the breadth of the changes, IHEs and their OPM partners need to fully understand their reporting requirements to the Department, whether changes to their contracts are required and the legal and liability impacts the changes will have on both the IHE and the OPM.
Second, the Department announced that it is holding listening sessions and taking public comment on potential revisions to the so-called “bundled services” exception to the Title IV incentive compensation ban, which currently allows IHEs and third parties to share tuition revenue for recruitment and other services provided to an IHE by the third party.
Both of these changes will require reassessment of the relative contracting risks and revision of such contracts to reflect new guidance. The guidance largely focuses on the practices of OPMs, but could have expanded implications for all public, nonprofit and for-profit institutions in the area of outsourcing assistance with recruitment, curriculum and other services, as it applies to any entity providing the listed services.
