Federal Outsourcing Guidance Prompts Concern of Unintended Consequences

Inside Higher Ed

Katherine Knott

April 3, 2023

Higher education associations, study abroad organizations, colleges and universities, and others are calling on the Department of Education to rescind guidance issued earlier this year that would expand the definition of outside companies that are subject the department’s oversight.

The department wrote a Dear Colleague letter in February that said any entity involved with the administration of an institution’s federal student aid is considered a third-party servicer, which puts them under the department’s oversight authority and subjects the companies’ contracts with institutions to regular audits. Historically, third-party servicers were involved with the student loan process and financial aid.

Commenters said the new guidance would jeopardize study abroad programs and international student enrollment and have a host of other unintended consequences, including possibly disrupting educational services. Some organizations said the guidance was a critical step to protect students. More than 1,000 comments were submitted last week before the comment period on the guidance closed.

“We have serious concerns about the consequences that are likely to follow if the [Dear Colleague letter] is left in place, including the potential for significant disruption and termination of critical education services to students and the reallocation of funds from educational purposes to compliance efforts,” American Council on Education president Ted Mitchell wrote in a letter on behalf of 85 other higher education associations.

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