Federal Outsourcing Guidance Prompts Concern of Unintended Consequences
Katherine Knott
April 3, 2023
The department’s guidance expanding the definition of third-party servicers has already been delayed until September because of initial pushback from the higher education industry.
Higher education associations, study abroad organizations, colleges and universities, and others are calling on the Department of Education to rescind guidance issued earlier this year that would expand the definition of outside companies that are subject the department’s oversight.
The department wrote a Dear Colleague letter in February that said any entity involved with the administration of an institution’s federal student aid is considered a third-party servicer, which puts them under the department’s oversight authority and subjects the companies’ contracts with institutions to regular audits. Historically, third-party servicers were involved with the student loan process and financial aid.
Commenters said the new guidance would jeopardize study abroad programs and international student enrollment and have a host of other unintended consequences, including possibly disrupting educational services. Some organizations said the guidance was a critical step to protect students. More than 1,000 comments were submitted last week before the comment period on the guidance closed.
