ED Issues Guidance on Third-Party Servicers
The Department of Education has published a series of questions and answers focusing on third-party servicers, clarifying guidance issued in a "Dear Colleague Letter" issued in early 2015.
Third-party servicers are entities or individuals that administer any aspect of an institution's participation in the Title IV programs, including, but not limited to, services and functions necessary:
- For the institution to remain eligible to participate in the Title IV programs.
- To determine a student's eligibility for Title IV funds.
- To account for Title IV funds.
- To deliver Title IV funds to students.
- To perform any other aspect of the administration of the Title IV programs.
The Q&A is divided into five sections: third-party servicer definition and examples; contracts; safeguarding student information; third-party servicer data form; and audits.
In its section on definitions and examples, ED clarifies how it defines a third-party servicer and includes a series of tables outlining the various services that institutions outsource to these entities. The tables also include common functions that would not categorize an entity as a third-party servicer.
Most notable to business officers, ED has included "receiving and processing of electronic files to print and mail credit balance refund checks and/or deliver Title IV credit balance refunds to students or parents via ACH" as a service provided by third-party servicers. NACUBO has concern with this inclusion as the association sees banks printing checks as a normal business function. ED has noted, though, that mailing checks produced by the institution does not qualify an entity as a third-party servicer.
Also in the Q&A, ED clarifies that an entity that does not receive compensation or reimbursement, but provides Title IV functions or services on behalf of the institution, is still considered a third-party servicer. ED also reminds institutions that they are required to notify the department when entering into a contract with a third-party servicer.
(Note: this article was updated on September 7 for clarity)
Director, Student Financial Services and Educational Programs
Vice President, Policy and Research