ED Adds to Third-Party Servicer FAQ
March 20, 2017
The Department of Education has bolstered its earlier guidance about third-party servicers with answers to four additional questions, including two posed by NACUBO.
Last August, ED released a "Dear Colleague Letter" (GEN-16-15) with a lengthy set of questions and answers to help colleges and universities understand how to determine which activities render an individual or entity a third-party servicer under ED’s rules. The questions and answers added on March 8 address the following situations:
- Use of personnel from a temporary staffing agency: It is not a third-party servicer if the agency does not specialize in, or have a significant presence in, staffing for higher education.
- Contracting with an outside entity to print and/or mail credit balance checks or prepare electronic funds transactions (EFTs) of credit balance refunds: It is not a third-party servicer if the checks or EFTs draw directly from the institution’s bank account, with some additional caveats.
- Assistance with calculating an institution’s job placement rate: If the entity is helping to gather information and calculate the rate, it is a third-party servicer; if it is merely auditing or validating information used by the school, it is not.
- One institution performing Title IV services on behalf of another institution: It is not a third-party servicer if the two institutions are part of the same legal corporate or shared governance system; if they are not connected, the institution performing services would be a third-party servicer.
NACUBO had asked for clarification on the first two issues. ED’s regulations, which have been in place for more than two decades, address an institution’s bank processing EFTs but not situations where the bank also prints and mails checks as part of the banking services offered. Earlier guidance seemed to indicate that this would make the bank a third-party servicer.
If an entity that performs work for an institution related to the administration of Title IV programs meets the definition of a third-party servicer, several regulatory requirements kick in. The school must notify ED within 10 days of signing, or modifying, a contract with the servicers, and contracts must include certain provisions. The third-party servicer must also provide certain information to ED and undergo an annual compliance audit. Both parties, the institution and the third-party servicer, are jointly and severally liable for any violations of Title IV requirements.
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