December 8, 2023

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Acknowledging widespread concerns among colleges, suppliers and associations, the U.S. Department of Education is pushing back by four months — to September — the start date for an expanded definition of organizations that are third-party service providers under federal financial aid programs.

Third-party servicers are entities that administer any part of a college’s Title IV federal financial aid programs. Being defined as a third party service provider brings with it additional regulatory requirements such as a compliance audit. Third Party Service Providers they are also jointly liable for violating federal student aid regulations.

February 15 instructions from the Ministry of Education has expanded the types of organizations covered by the regulators’ definition of a third-party service provider. The letter outlining the new guidelines is framed in part around online program managers, or OPMs, whose ability to earn money through revenue-sharing agreements with colleges is the subject of a separate regulatory review announced the same day.

But the department also wrote that for outside service workers, “most of the activities and functions performed by outside entities on behalf of the institution are intrinsically linked” to Title IV programs. Revised the guidance to state that parties involved in student recruitment, retention, Title IV management software, educational content, and instruction are considered third-party service providers and as such must meet regulatory requirements.

The changes have raised a lot of questions about how broad the new guidelines actually are — and how quickly they were rolled out.

Observers have suggested that the new definition could apply to third-party service providers that provide learning management systems or even textbook publishing house. Also potentially included are organizations such as police departments that compile crime statistics for colleges, hospitals that offer clinical experiences, and online college extensions that work with campuses. according to American Council on Education, the higher education sector’s top lobbying organization.

D2L, the company that sells the popular Brightspace learning management system, even issue a statement assuring customers that they do not think they are considered third-party service providers under the new definition.

“The Department’s announcement is ambiguous and whether the guidelines are compatible with the existing definitions of TPS under [Higher Education Act] and the department’s own regulations are questionable, to say the least,” it said. “However, D2L believes the learning management system it provides to US institutions is not captured in the new guidelines.”

Initially, the Department of Education said colleges would have until May 1 to report newly covered third-party relationships. It also asked them to submit comments on the changes by mid-March.

But on Tuesday, the department said the new guidance and reporting requirements would not take effect until September 1. It extended the comment period until the end of March.

“The Department wants to ensure that eligible institutions and external service providers clearly understand the requirements for third-party service providers and that they have sufficient time to comply with these requirements,” the updated manual says.

Why colleges wanted more time

The new manual is extensive. The letter announcing it contains more than 8,000 words, including questions and answers and a table outlining the services that could make contractors qualify under the new definition.

An organization that meets the definition of a third-party service provider for one institution may not meet the definition for another.

“The Department has noted that providers often offer multiple versions of a product or service and often customize the product or service based on the unique needs of the institution,” the letter said. “It is possible for an entity to be considered TPS in relation to one institution and not another, depending on the specific services or functions the entity performs for each institution.”

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