The New Era of Regulatory Overreach

Inside Higher Ed

Virginia Foxx

April 7, 2023

Proposed changes to the Education Department’s definition of third-party servicers would stifle innovation and increase costs to colleges and students, Representative Virginia Foxx writes.

The Biden administration is best known for one thing: vastly overreaching its authority and then acting surprised when it gets pushback. On Feb. 15, the U.S. Department of Education issued a sweeping policy change through informal guidance that expands the definition of third-party servicers and would subject the institutions that contract with these third-party servicers to additional reporting, while the new third-party servicers would be obligated to turn over their contracts to the Department of Education, be held jointly and severally liable for any errors, and be required to undergo annual compliance audits.

The Higher Education Act recognizes organizations that contract with a college or university to help administer or participate in the Title IV financial aid programs as third-party servicers, subject to federal monitoring and compliance requirements. However, the new, broadened definition seems to incorporate a vast majority of activities that occur at a college, not just activities related to student financial aid, such as companies providing courseware or those contractors assisting with student retention. Students reading this might recognize the names of potential third-party servicers like Blackboard or Canvas that could get swept up under the new definition and compliance regime. As a result, nearly every college and university in the country was asking why the department would regulate the private contracts of institutions with companies providing critical education services to students.

The Education Department seemingly sought to target companies that help colleges manage their online programs, but its reach was much broader. The department’s sudden, baffling and contradictory change in guidance confused the entire education and technology community so badly that top education officials were forced to pull back almost immediately, announcing they would postpone implementation for six months while receiving public comment on the guidance for an additional 30 days. The department received more than 1,000 comments, with many higher education associations, colleges and universities asking officials to rescind the guidance (the comment period closed last week).

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