Lest I Understate The Issue

Author

Phil Hill
February 17, 2023

On Wednesday I wrote about the US Department of Education’s announcements on a review of OPM revenue sharing agreements (specifically by re-considering the bundled services exception from 2011 guidance) and the vast expansion of the definition of third-party servicers (TPS). That second element would classify most of the EdTech industry under TPS rules, which would place an enormous regulatory burden on both schools and vendors. While this subject may feel wonky, it is has huge implications, and I may have understated some of the potential impact.

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.

Market Examples

The example I provided in that first post was on the LMS market, naturally (hammer, nail). But the impact is broader. Let’s look at two additional examples from the new TPS guidance.

Third-Party Servicers – Conducting activities designed to keep an individual enrolled at an institution eligible for Title IV aid. These activities include, but are not limited to:

Think of any student retention system (e.g., EAB, Anthology, Civitas) but also the CRM market.

And another example on content providers.

Third-Party Servicer – Providing any percentage of a Title IV-eligible program at an institution, including:

This obviously includes textbook publishers and courseware providers, but it also include the entire assessment market.

Update: It is possible to interpret “activities” and “providing” as requiring human intervention, thus limiting the scope in these areas away from pure software solutions. 1

Do not mistake these moves by the Department of Education as solely targeting the OPM market, despite the news coverage focusing on that angle.

Swipe of a Digital Pen

There’s more there, but the point is that if the new TPS guidance remains in place and my understanding is correct, most of the EdTech industry will fall under these new regulations. Other commenters have noted that only large incumbents would be able to handle the new rules.

And it must be pointed out that this massive change to the EdTech market comes with the swipe of a digital pen. ED sent this guidance with no notice, no public comment period, no negotiated rulemaking, nothing.

Impacts Outside the US

And the new guidance will impact international EdTech markets as well. TPS rules have a requirement for US ownership, so on the surface all EdTech vendors located outside the US will be excluded (or at least face enormous burdens to sell to US schools).

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.

In the reverse direction, the market consolidation in the US will change what those vendors can sell internationally.

Expect more coverage here as this story develops.

1 Thanks to Kevin Shriner for pointing this out.