Did You See The Memo About the TPS Reports? EdTech Style

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Well that was quite an update from the Department of Education (ED). The department, in a long-awaited move, has started action on reviewing the 2011 Dear Colleague letter guidance that provides much of the regulatory foundation for OPM revenue sharing agreements. The short description is that ED will hold public listening sessions starting in March to support potential changes to the guidance, including the question of “How would changing third-party servicer contracts from a revenue-sharing model to a fee-for-service model impact the services, such as recruitment, currently provided to an institution under the bundled services exception?” We don’t know if there will be any changes, but we know there is a review. [link to full-page audio]

The GAO Jump Ball

This should not be a surprise, at least to any readers of this blog. The Spring 2022 release of the Government Accountability Organization (GAO) report on OPMs and revenue sharing agreements foreshadowed the next steps, despite the report itself not finding any major issues.

I was wrong in my estimate of timing, as the review did not start in the fall, as I predicted, likely due to the ED biting off more than it could chew with the student loan forgiveness and borrower defence planned changes. In my initial coverage of the GAO report, I noted that the scope was likely to grow.

As a start, it is quite clear that Education Benefit Providers like Guild Education and InStride will be impacted, and I have argued that they are a form of OPM. Online programs, recruiting students, tuition revenue share models. Online global course and program providers like Emeritus could also be impacted. And what about other EdTech contracts? Clearly Bootcamp providers and online continuing and executive education contracts could be in scope. 

ED is unlikely to trigger changes to all third-party contracts with payment based on enrollment levels, but it is also unlikely that they will stick just to OPMs. There are a lot of questions, but the issue to watch is how broad and how deep the upcoming ED actions will be on the subject.

A Change in Scope

We now know much more with today’s announcement, and the answer is that ED is going much further than almost anyone suspected. The second half of today’s announcement will likely have a bigger impact than the potential changes to revenue sharing for OPMs.

Today, the Department also released updated guidance that clarifies when organizations that contract with institutions are considered regulated entities known as third-party servicers. In particular, the guidance clarifies when companies and others who provide recruitment services for colleges will fall into this category.

Traditionally, Third-Party Servicers (TPS) are defined as those entities directly supporting institutions in their provision of Title IV financial aid, and these providers have increased regulatory burdens. Being based in the US and not owned by a foreign national, annual audits, addition reporting of all contracts with ED, etc. Consider the implications of the first requirement.

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.

Today’s news initially pointed out that OPMs are to be considered TPSs, also triggered by the GAO report, but then ED went further. Much further. Here is the key sentence:

We therefore issue this guidance to clarify that 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 are defined as third-party servicers.

Basically, if a vendor provides software and services enabling in almost any way an academic program eligible for Title IV financial aid, that vendor may be considered a TPS with all of the increased regulations. Consider this element of the set of tables provided to explain what activities might or might not fall under TPS regulations.

Third-Party Servicers – Providing computer services or software in which the provider has access to, or maintains control over, the systems needed to administer any aspect of the Title IV programs, whether through manual or automated processing, including, but not limited to, systems related to financial aid management, recruitment and enrollment, admissions, registration, billing, and learning management.

Learning management – even LMS vendors are now considered TPS? With this broad definition, it certainly appears that they are. This would also capture publishers and courseware providers, ERP providers, etc, etc. And the guidance change is effective immediately. This is huge, if ED does not further amend their new guidance.

Regulatory Activism Redux

Today’s announcments certainly fit into the new Regulatory Activism that I described 11 months ago.

We all knew that the US Department of Education (ED) would change its regulatory approach with the new administration, and it has been virtually axiomatic that they would directly target the for-profit sector. But recently it is becoming more clear the approach and scope of the ED regulations, and it can best be described as regulatory activism, by which I mean using the regulatory processes to achieve pre-defined end goals. And those goals seem to have a common “protect students from the bad actors” theme, usually based on the involvement of for-profit companies – and not just in the for-profit sector. Some people applaud the changes as overdue corrections to the system, and others decry the changes as overly broad and likely to have unintended consequences, but either way, I think those involved in online education and alternative models should take notice and avoid assuming that only the for-profit sector will face aggressive regulations.

Further in that post I described what was becoming a common approach.

  • Use regulatory processes not just as safeguards but also to enable predefined end goals, usually around ‘reining in for-profit’ entities;
  • Minimize the amount of time allowed for public comment and debate;
  • Informally work through multiple agencies, both federal and state, to set new rules; and
  • Worry about the unintended consequences later.

If I’m reading the new TPS guidance changes correctly, we are going to have a slew of unintended consequences.

Both parts of today’s announcement need to be followed – the review of OPM revenue sharing agreements and the new scope changes to TPS guidance. Stay tuned for more coverage.

6 replies
  1. Jim Williamson
    Jim Williamson says:

    Hi Phil: Thank you for keeping us posted on this.

    I wonder if “learning management” is not actually LMSes, but is referencing companies who create educational content and instruction. Indeed, the definition actually excludes TPS’s “Providing computer services or software.” (See: https://www.ecfr.gov/current/title-34/subtitle-B/chapter-VI/part-668/subpart-A/section-668.2#p-668.2(Third-party%20servicer:))

    We’ll have to see how it plays out, but my sense is this refer to companies contracted to create course materials, not necessarily the platforms on which those materials are delivered.

  2. Phil Hill
    Phil Hill says:

    Jim, I think what you are pointing out is that this Dear Colleague Letter is just plain wrong. Yes, the actual regulation excludes “providing computer services or software,” but the DCL clearly includes “providing computer services or software.” Also, they cover instructional content and instruction specifically in the following section / table.

    A DCL should bring clarity and explain subregulatory guidance, not reverse standing regulations or interpret that which is clearly outside of the intent of the HEA. This DCL does the opposite in my opinion.

  3. Jared Stein
    Jared Stein says:

    The language in this guidance is either frustratingly vague and troublingly specific, depending on how you read it. I think the key question is, “What is a ‘Title IV program’?”

    If a Title IV program is an /academic/ program offered by an institution that qualifies for federal student funds (as I believe your interpretation assumes, e.g. “Basically, if a vendor provides software and services enabling in almost any way an academic program eligible for Title IV financial aid, that vendor may be considered a TPS …”), then yeah, this is not only overly broad, it it over reaching.

    But consider how this guidance reads if “Title IV program” does not refer to academic programs offered by the institution, but rather to “financial aid programs for postsecondary students authorized under Title IV of HEA” (as suggested by language used by FSA itself as well as by external entities such as the Congressional Research Service). If this is the case, then any reference to TPS only includes those who administer or interact with FSA. (“A TPS is any entity or individual that administers, any aspect of an institution’s participation in the Title IV programs.”)

    In other words, a vendor who provides software or services that supports academic programs does not qualify one as a TPS, even if that academic program is eligible for a Title IV program.

    I’m leaning toward this this second interpretation, though I am open to being proven wrong. I will say that this second interpretation then makes the guidance’s reference to software or services for “learning management”, “content”, “instruction”, and “assessment” even more confusing. What I suspect the FSA is trying to do is conflate/combine both guidance on administration of “Title IV programs” (specific to financial aid) and also regulate how institutions out-source core functions of their mission, namely instruction.

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