Department of Education updates third-party servicer guidance
May 18, 2023
It looks like it is back to the drawing board for third-party servicer guidance.
The Department of Education, in a May 16 Dear Colleague Letter (DCL), said it is providing additional time for institutions to come into compliance with third-party servicer guidance and said it is rescinding prior guidance prohibiting contracts between colleges and foreign-owned or operated servicers.
“We are aware that many institutions and companies have already begun to analyze their contracts in anticipation of reporting and compliance deadlines, and we understand the concerns that can cause,” the Department said in the DCL. “Therefore, we are providing additional time for institutions and companies to come into compliance, and the September 1, 2023, date is no longer in effect.”
Regarding the Department’s prohibition on contracts between colleges and foreign-owned or operated third-party servicers, the Department said this issue may be addressed in the future through negotiated rulemaking.
“We also received many comments regarding the Department’s prohibition on contracts between colleges and foreign-owned or operated third-party servicers, which was established in guidance published in 2016,” the Department said in the DCL. “These comments revealed that the number of servicers with some level of foreign ownership has expanded substantially since we issued the 2016 guidance, and the guidance does not clearly define foreign ownership.”
The Department said it plans to issue a final revised DCL with an effective date at least six months after its publication to allow institutions and third-party servicers covered by the final guidance to meet any reporting requirements. Deadlines for audit and contractual requirements will follow, starting with the institution’s first fiscal year that begins after the effective date for the reporting requirements.