Is the Department of Education’s Latest “Dear Colleague” Letter Regulatory Overreach?

Access and affordability are two of the biggest issues in higher education. Other than in areas with no internet coverage, it can be argued that online courses and programs have expanded access to higher ed. While there are affordable online degree providers, I believe the expense of marketing online programs reduces opportunities for many colleges to utilize technology to scale at a lower cost of tuition and other expenses.

Online program managers (OPMs) are entities that provide traditional colleges and universities with the opportunity to offer online courses, certificates, and degree programs without having to invest in the infrastructure to market, teach and support online students. Critics of the cost of higher education claim that the revenue sharing model of most OPMs incentivizes the OPM to spend more money on marketing the program to attract more students. They also claim that spending more money means the program tuition and fees will likely not be lower than the cost to attend on campus. Some critics also argue that the OPM model does not help online program graduates find higher paying jobs in their field to repay their student loan.

During a recent earnings call with analysts, Grand Canyon CEO Brian Mueller defended OPM agreements stating that the practice shields universities from financial risk. Mr. Mueller makes a good point. Many of the institutions that signed OPM agreements are sophisticated entities. They were aware of what they were contracting for when they signed their OPM agreements. They did not want to take the time and spend the money to develop and market an online degree. They hired the OPMs and were willing to sign a long-term services contract that shared in the specific program revenues generated to avoid paying the OPM up front for the development costs of the program.

In the Spring of 2022, the Government Accounting Office (GAO) issued a report about OPMs that recommended stronger monitoring of OPM contracts with colleges and universities. There were two specific recommendations in the report from GAO that the Department of Education accepted. These recommendations were:

  1. The Secretary of Education should provide additional instructions for inclusion in the Compliance Supplement to help auditors better identify and assess potential incentive compensation ban violations when a college contracts with an OPM. Additional instructions should prompt auditors to ask specifically about OPMs, direct auditors to obtain and assess compensation information for OPM staff who provide recruiting services, and reference relevant guidance including the 2011 Dear Colleague Letter.
  2. The Secretary of Education should provide additional instructions to colleges regarding the information they must provide about their OPM arrangements during compliance audits and program reviews. Additional instructions should explain that colleges are responsible for both identifying all OPM contracts that include recruiting, and then providing auditors and Education’s program review staff with copies of those contracts and information on how covered OPM staff are compensated.

The Department of Education’s response to the second recommendation was that they would revise their instructions to colleges about program reviews and audits to “improve the agency’s enforcement of the ban on incentive compensation. As of January 2023, Education planned to update its Program Review Guide to include instructions to colleges stating that they must provide Education with all contracts or agreements that involve student recruitment, including those with OPMs.” Last week, the Department of Education issued a press release indicating that they will hold listening sessions on the impact of guidance on incentive compensation for recruiters, an area where the only exception to the ban is for OPMs. In the press release issued by the Department, Under Secretary Kvaal is quoted “Online education has the potential to meet the needs of many students and lower costs. But we are concerned about the growth in loan debt and want to ensure that students get value for their money.”

The same day that the incentive compensation review was announced, the Department of Education issued guidance to “institutions that contract with a Third Party Servicer (TPS) to administer any aspect of the institution’s participation in the student assistance programs authorized under Title IV of the Education Act of 1965, as amended (HEA).” The introduction to the “Dear Colleague” letter indicates that the Department’s review of contractual arrangements between institutions and outside entities “confirm that most activities and functions performed by outside entities on behalf of an institution are intrinsically intertwined with the institution’s administration of the Title IV programs and thus the entities performing such activities are appropriately subject to TPS requirements…The information gathered in the Department’s review highlighted the need for an updated list of functions and activities that fall within the scope of the TPS requirements.”

The GAO review of OPMs indicated that the Department was concerned about incentive payments, and the recent press release confirms that. The TPS guidance is much broader. In fact, the wording in this paragraph of the guidance caused more than a few companies to take note. “In particular, the Department is revising its guidance concerning 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. The Department is aware that a large and growing industry has developed to provide one or more of these services as a means of transitioning academic programs into a distance education format and expanding enrollment.” These entities performing these services are “subject to annual non-federal audits of the Title IV-relevant functions they perform, if such functions are covered by the audit guide.”

While the guidance takes effect immediately (instead of the usual practice of soliciting comments from the public first), the public was invited to submit comments regarding any suggested concerns or changes to the Department within 30 days of the letter’s publication date of February 15, 2023.

EdTech blogger and consultant, Phil Hill, published the first article that I read with comments on the Department’s expanded guidance. He pointed out that the guidance went much further than pointing out that OPMs are to be considered Third Party Servicers (TPS). In its definition of TPS, the Department included “providing computer services or software in which the provider has access to, or maintains control over, the systems needed to administer any aspect of the Title IV programs, whether through manual or automated processing, including, but not limited to, systems related to financial aid management, recruitment and enrollment, admissions, registration, billing, and learning management.” After reading the last two words of that sentence, I could almost hear Phil Hill increasing the volume as he read his following sentences: “even LMS vendors are now considered TPS?” With this broad definition, it appears they are. This would also capture publishers and courseware providers, etc., etc. And the guidance change is effective immediately. This is a big regulatory expansion if ED does not further amend their new guidance.”

Two days later, Phil Hill published another article that expanded his commentary on the Dear Colleague letter. Whether it was for effect or not, he wrote “the vast expansion of the definition of third-party servicers (TPS) would classify most of the edtech industry under TPS rules, which would place an enormous regulatory burden on both schools and vendors.” He noted that the impact was broader than the LMS impact that he had previously noted.

Mr. Hill cited a section of the TPS definition that included:

Third-Party Servicers – Conducting activities designed to keep an individual enrolled at an institution eligible for Title IV aid. These activities include, but are not limited to:

  • Monitoring academic engagement and/or daily attendance.
  • Conducting outreach to students regarding attendance or academic engagement.
  • Responding to inquiries from students and/or their families regarding assistance or resources designed to help students maintain enrollment in the institution/program or maintain eligibility for Title IV aid.

Mr. Hill wrote that any student retention system (e.g., EAB, Anthology, Civitas) would fall into this category but so would the CRM (Customer Relationship Management) market. My belief is that the retention modules of software systems offered by EAB, Anthology, and Civitas only flag potential students at risk regardless of their funding source and do not come with people providing services or a fee structure that rewards them for directly recruiting or retaining students. Therefore, they should not be included in the regulations even if they have a Software as a Service (SAAS) fee that charges an annual fee based on overall enrollment. However, given Mr. Hill’s comments, I recommend any of those providers concerned about these broad guidelines consider providing comments to the Department before March 15.

Mr. Hill cited another section of the TPS definition regarding content providers:

Third-Party Servicer – Providing any percentage of a Title IV eligible program at an institution, including:

  • Establishing requirements for the completion of a course and/or evaluating whether a student has met those requirements;
  • Delivering instruction or mandatory tutoring;
  • Assessing student learning, including through electronic means; or
  • Developing curricula or course materials, unless the institution maintains full control of the curriculum/materials and delivers the instruction itself.

He commented that this definition obviously includes textbook publishers and courseware providers, but it also includes the entire assessment market. My first thought was that if Mr. Hill is right, what is the impact of this guidance on Open Education Resources (OER) websites that provide free textbooks, course materials, and online courses? In addition, what about hospitals that provide the clinical rotation for nursing and other medical programs? Clearly, this is overreach or the Department just wants to block any attempts at lowering the cost of college. Large companies will not have as much of a problem complying with the guidance, but the smaller companies (non-profit and for-profit alike) will find it difficult to add the compliance work and audits. I hope my thought that hospitals providing clinical rotations could be considered TPSs is wrong. During an era when we have a shortage of nurses, part of that is due to caps in nursing program enrollments because of the inability to find enough clinical rotations for students. Adding the TPS paperwork and audit compliance requirements to a hospital may be the final straw in their participation with these needed clinical rotations.

Another implication is that any company now designated a TPS will be prohibited from being a vendor to U.S. schools if they are located outside the United States. That will impact the international EdTech vendors who are providing services to U.S. institutions according to Mr. Hill.

I have no problems with the Department considering feedback from many different parties regarding the revenue share exemption received by OPMs. It appears that the normal process is being followed.

I am concerned about the TPS Dear Colleague letter. I believe Mr. Hill is spot on with his concerns that this “Dear Colleague” letter is a regulatory overreach. Almost any company in the EdTech space that is listed in his group of expanded TPS classifications should provide comments regarding the letter within the 30-day deadline even though there is no guarantee that those comments will be considered. I also find it ironic that the letter was signed by the Deputy Assistant Secretary for Policy, Planning, and Innovation. This guidance is not innovative. It’s a withdrawal from innovation and is a roadblock to improving student outcomes, increasing accessibility, and lowering costs that reduce the affordability of a college degree. Financial aid providers are already included in the TPS category. Classifying software vendors as a TPS when their primary purpose is to help a college or university improve its online education is a step backwards. Classifying OER providers as TPSs whose goals are to provide textbooks and courseware that reduce the cost of education is ridiculous. My recommendation is to void the letter and go through a normal process for proposed rule changes. I’m not sure who or what created the sense of urgency for the Department to issue a broad set of guidelines that go into effect immediately but the grossly expanded definition of a Third-Party Servicer needs to be reconsidered.

Subjects of Interest


Higher Education

Independent Schools


Student Persistence