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Focus on Regulation

U.S. Department of Education Issues Guidance on Third-Party Servicers

On August 18, the U.S. Department of Education issued a series of questions and answers related to “third-party servicers”.  This recent guidance follows the issuance of a Dear Colleague Letter in January 2015 that addressed institutional responsibilities and requirements for institutions participating in the Title IV federal student financial aid programs that choose to enter into contracts with third-party servicers.

Third-party servicers are entities or individuals that administer any aspect of an institution’s participation in the Title IV programs, including, but not limited to, services and functions necessary:

  • For the institution to remain eligible to participate in the Title IV programs;
  • To determine a student’s eligibility for Title IV funds;
  • To account for Title IV funds;
  • To deliver Title IV funds to students; or
  • To perform any other aspect of the administration of the Title IV programs.

That Dear Colleague Letter prompted a number of questions submitted to the Department related to third-party servicer requirements.  The August 2016 guidance is intended to provide clarification with regard to the January 2015 Dear Colleague Letter, but the Department says the guidance “does not make any changes to the regulations related to third-party servicers.”  Moreover, the new guidance “does not change or reverse any guidance provided in Dear Colleague Letter GEN 15-01, which is still in effect.”

The 20-page questions and answers document addresses questions in several sections, including:

  • The definition of third-party servicer and examples of functions and services performed by third-party servicers. In this section, ED clarifies how it defines a third-party servicer and includes a series of tables outlining the various services that institutions outsource, creating a third-party servicer relationship. The tables also include common functions that would not render an entity as a third-party servicer.
  • Third-party servicer contracts.
  • Third-party servicers and safeguarding student information.
  • Third-party servicer data form issued by the Office for Management and Budget.
  • Third-party servicer audits.

Institutions that participate in the Title IV federal student financial aid programs and contract with an entity or individual to administer any aspect of the institution’s participation in the Title IV programs should review the questions and answers document for guidance on how to comply with the Department’s regulations.  Institutions that have previously determined that they do not have third-party servicer arrangements with certain vendors also should review the questions and answers to confirm that understanding in light of the new guidance.