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

Author

Phil Hill
February 15, 2023

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.

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.