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After criticism from a range of higher education organizations, the Education Department is clarifying which companies and activities would be covered by its new definition of third-party servicers.

Caroline Brehman/CQ-Roll Call Inc./Getty Images

The Education Department says its controversial guidance on outsourcing isn’t as expansive as critics have alleged.

Study abroad programs, recruitment of international students, partnerships with external medical facilities and course-sharing agreements, among others, would not be subject to third-party servicer requirements. A number of higher education associations and organizations involved with study abroad and international education have voiced concern in recent weeks about how the proposed guidance could affect their programs, prompting the Under Secretary James Kvaal to issue a clarification Tuesday.

“The department has already benefited from listening to the feedback from stakeholders. We will continue to review the helpful suggestions we have received and continue to engage with the community as allowable and appropriate,” Kvaal wrote.

The department also is planning to delay the guidance as it reviews the more than 1,000 comments it received on the letter. Instead of taking effect Sept. 1 as planned, the guidance will apply six months after the final letter is issued.

The department’s guidance is part of a multipronged effort to gather more information about online program managers’ contracts with colleges and universities and to increase oversight of the companies. However, several critics of the guidance argued in public comments that the guidance went far beyond OPMs and would have a host of other unintended consequences, including possibly disrupting educational services.

The department said in the guidance issued in February that any entity involved with the administration of an institution’s federal student aid is considered a third-party servicer. Historically, third-party servicers were involved with administering financial aid programs, but the guidance expanded the definition of a third-party servicer to include “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.” (Title IV references Title IV of the Higher Education Act, which authorizes federal financial aid programs.)

Department guidance currently says that an institution can’t contract with a third-party servicer that’s located outside the United States or is owned by an individual who is not a U.S. citizen or lawful resident, which higher education organizations also said would create problems for colleges and universities.

Kvaal wrote that the department intends to remove that provision of the guidance document pertaining to foreign ownership of a third-party servicer, which dates back to 2016 and was aimed at protecting taxpayers from uncollectable liabilities against a foreign owner.

“However, based on comments received, the number and breadth of servicers with at least some level of foreign ownership has expanded in the context of a changing higher education marketplace where institutions are adopting increasing numbers of technology-based solutions, and we believe the issue is more appropriately considered through negotiated rule making,” Kvaal said.

Greg Hess, president of IES Abroad, a nonprofit that provides study abroad opportunities, said the update provides a full understanding for his organization. He had been concerned about how the guidance would affect his operations.

“The case is closed for us,” he said. “It’s a little like Christmas Day.”

Several higher education groups and companies that work in the industry have called on the department to rescind the guidance altogether; 2U, a prominent online program manager that would be considered a third-party servicer under the guidance, has sued to block it from taking effect.

“We will carefully review public comments on areas of confusion or concern and consider clarifying and narrowing the scope of the guidance in several areas, including software and computer services, student retention, and instructional content,” Kvaal wrote. “These clarifications could include other areas as we continue to review comments and seek to balance the need for greater transparency and oversight against administrative burden, among other factors.”

The American Council on Education, 2U and others have urged the department to use the negotiated rule-making process to make changes to the regulations for third-party servicers. The issue is on the agency’s regulatory agenda for the year and was a frequent topic at Tuesday’s public hearing kicking off negotiated rule making.

“I think it demonstrates how complicated this is and how widespread and significant the concerns we highlighted are,” said Jon Fansmith, senior vice president for government relations at the American Council on Education. “We appreciate the department recognizing that fact and identifying exemptions as well as establishing a more reasonable time frame for the guidance to be implemented.”

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