The Great Conflation

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On to the update.

A week after the initial news from the US Department of Education (ED) regarding two Dear Colleague Letters, it looks like people are catching on to how big a story this is. You can read my initial coverage and follow-up post from last week for background. WCET has a must read post, and the Chronicle has the first real trade press coverage over the EdTech industry-changing potential of the third-party servicers (TPS) expansion.

The most common mistake I’m seeing in online and private discussions is that too often the two issues are being conflated, which makes it seem that the TPS expansion is only for OPMs. It is not.

• The review of the bundled services exception created in a 2011 Dear Colleague Letter (DCL) is mostly targeted at OPM providers and is the underpinning of tuition revenue-sharing agreements. Last week’s announcement describes virtual listening sessions for the department’s review that may (or may not) lead to changes to this guidance or even complete recision. This is a big story, and it could have a huge impact on the OPM market, where tuition revenue-sharing has long been the most common contractual arrangement with schools.

• The expansion of which functions would classify EdTech vendors as TPSs (and even state agencies) is separate from tuition revenue sharing agreements, and OPMs are only one category of vendors that are affected by the new language. My two initial posts describe why this is an even bigger change, one that could upend the entire EdTech industry.

The conflation arises from the ED’s announcement, which combined both issues into one press release with a title / subtitle combination that separates yet combines the issues. The text itself was confusing about the relationship of the two.

Regulatory Lens

From an as-written regulatory lens, these are two separate issues with separate scopes (OPM vs. most of EdTech) and stages (listening sessions to inform a new review vs. formal release of a Dear Colleague Letter). If you combine the issues together, it may seem like the TPS expansion is only for OPM vendors using tuition revenue-sharing agreements, which is incorrect. Or if you combine the issues and assume that the TPS expansion is only for companies involved in financial aid handling or marketing & recruitment services, that would also be incorrect.

The TPS expansion is for any company providing services or computer services/software related to any aspect of a Title IV (federal financial aid) eligible program.

Political Lens

What I think is a better lens to view and understand the conflation of the issues is political in nature. In January of 2020, Senators Warren and Brown issued a letter to five OPM companies asking them to respond to specific questions in the letter. And the letter already had the conclusion in mind.

Two years later, Senator Tina Smith joined Senators Warren and Brown in a letter to eight OPM providers, demanding answers to additional questions. Nothing had changed in the tone or presumed conclusions.

One year later after that (last month), Representative DeLauro explicitly called for the end of tuition revenue sharing agreements by OPM providers.

There is enormous and growing political pressure being applied on the ED to increase their oversight of for-profit companies and rein in OPMs, particularly by ending tuition revenue sharing agreements. Last year’s GAO report on OPMs, as I have frequently described, was the trigger for the next level of review of OPM companies.

The reason in my mind that the OPM bundled services agreement review and the TPS expansion were combined into one announcement is that ED staff are playing a political game.

Trade Offs

If the OPM review were the only issue on the table, I argue that it would be politically dangerous for the ED to make no changes to the 2011 guidance. They would need to either make significant revisions that in effect made tuition revenue sharing agreements toxic, or they would need to completely rescind the previous Dear Colleague Letter.

By putting the two issues together, ED now has options. One view is that if there is a determination pending that would keep the 2011 guidance mostly in place with only slight modifications, ED can assuage the political pressure by pointing to the TPS expansion and say that they did rein in companies (including OPMs) and dramatically increase their oversight through direct regulation of EdTech.

An alternate view is that if there is a determination pending that would remove the 2011 guidance - which many for-profit schools rely on for their OPM programs - then ED could reverse course and rescind or significantly modify last week’s TPS expansion guidance. OK, we heard you, and we’ll only upend the OPM market.

Beyond the options provided, conflating the two issues also sends a strong message to politicians that ED is listening and taking coordinated action.

We don’t know yet how either issue will play out this spring, but in the meantime, I think the political lens provides a better view on why these two issues were intentionally conflated through one announcement.

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