Tuesday was a busy day relating to US regulatory guidance discussions targeting Online Program Management (OPM) companies. Due to the nature of the initial news on an updated Dear Colleague Letter, I am putting that section of this premium post outside of the paywall.
Last night the US Department of Education (ED) updated the actual Dear Colleague Letter (DCL 23-03) dealing with the third-party servicer (TPS) expansion guidance. By moving away from the novel use of a blog post to share guidance and back to updating the actual DCL, it appears that ED decided it better to only update issues where they can be clear: effective date and foreign-owned provisions.
SUMMARY This letter removes the effective date of third-party servicer guidance in Dear Colleague Letter GEN-23-03, which will not go into effect, and removes the prohibition on contracts between institutions and foreign-owned or operated third-party servicers.
On the first topic of effective date, ED acknowledged the problems of the rushed guidance.
We are aware that many institutions and companies have already begun to analyze their contracts in anticipation of reporting and compliance deadlines, and we understand the concerns that can cause. Therefore, we are providing additional time for institutions and companies to come into compliance, and the September 1, 2023, date is no longer in effect. Specifically, we plan to issue a final revised DCL with an effective date at least six months after its publication to allow institutions and third-party servicers covered by the final guidance to meet any reporting requirements. Deadlines for audit and contractual requirements will follow, starting with the institution’s first fiscal year that begins after the effective date for the reporting requirements.
On the topic of foreign ownership, ED was even more clear with a full rescission of that clause. D2L is the biggest winner here, followed by Pearson and all of those in the study abroad and foreign student recruitment space. And institutions that use those vendors.
We also received many comments regarding the Department’s prohibition on contracts between colleges and foreign-owned or operated third-party servicers, which was established in guidance published in 2016 (Dear Colleague Letter GEN-16-15). These comments revealed that the number of servicers with some level of foreign ownership has expanded substantially since we issued the 2016 guidance, and the guidance does not clearly define foreign ownership. For those reasons, we are rescinding our 2023 and prior guidance (DCL GEN-16-15 and the March 8, 2017 Electronic Announcement Updated Third-Party Servicer Questions and Answers) prohibiting contracts between colleges and foreign-owned or operated servicers. That issue may be addressed in the future through negotiated rulemaking.
Perhaps as important, however, is what the DCL update did not include. There is no language about a potential reduction in scope of what is to be considered TPS activities (such as LMS, student retention, instructional content, etc) that were described in the blog post. See this post for a description of that scope reduction that did not make it into the DCL update.
I think there is a good news / bad news aspect to this update. The good news is that we have more clarity on changes and process (sticking to DCL for guidance), with a rescission of the foreign-owned provision. The bad news is that there is no reduction in scope described. We simply do not know what language ED and others (Arnold Ventures coalition in particular) will include in final guidance. And note that ED is doubling down in its refusal to rescind DCL 23-03.
Yes, I suspect that 2U’s lawsuit played a role in ED’s decision to move from blog posts to DCL updates. But the timing is also possibly related to yesterday’s congressional testimony by Secretary of Education Miguel Cardona.