Higher Ed Braces for Impact of Third-Party Service Regulation Expansion

A recent Dear Colleague letter that addresses the Department of Education’s upcoming expansion of a third-party service regulation will likely impact nearly all higher ed institutions that contract with a vendor to use their services and programs. The original rule was designed to monitor contracted companies that provide colleges and universities with services to manage various aspects of Federal Student Aid.

In his latest podcast episode,  Dr. Drumm McNaughton discusses the recent Dear Colleague letter and the upcoming regulation expansion with Michael Goldstein, Managing Director of Tyton Partners’ Center for Higher Education Transformation.  Mike talks about:

• Why the Department penned the letter and what it says.
  
  
• What the Department’s position is on the regulation it’s expanding.
  
  
• What colleges and universities will likely be impacted by the implementation of this expanded rule.
  
  
• How it will likely affect the working relationship between institutions and third-party servicers.
  
  
• How higher ed has been reacting to the letter.
  
  
• What will likely happen as a result.

• The Dear Colleague says that the Department of Education will have the authority to look at the contracts and economic relationships between institutions and enterprises that provide them with services, including online program managers. This will require them to deliver detailed information about their finances to the Department. Based on laws and regulations, the Department will also be immune from any type of congressional review and from being challenged in the courts.
  
  
• The Department believes it’s responsible for ensuring that the Federal financial aid monies is being properly used, and thus are examining transactions between institutions and these enterprises. But it has grabbed hold of a third-party service or regulation, which was intended for entities that actually put their fingers on the federal money.
  
  
• The Department of Education was prompted to publish the Dear Colleague letter because the GAO, the Inspector General, and various congressional oversight committees have said the Department doesn’t fully understand this relationship between institutions and the enterprises that provide them with third-party services.
  
  
• The Department issued this Dear Colleague letter on February 28. It initially gave higher ed two weeks to comment on it, but the comment period was extended to March 30. The Department also moved back the implementation date from May 1 to September 1.
  
  
• The Department also published an announcement saying that it is going to initiate a Negotiated Rulemaking process that will include a comprehensive review of multiple regulations, including regulations that involve the oversight of entities that are providing services to institutions. The Department will initiate this over the next six to eight months, starting in late spring. These regulations will likely not go into effect until July 1, 2024, at the earliest.
  
  
• Negotiated Rulemaking enables the Department to implement regulations, whereas a Dear Colleague letter is an opinion that can be rescinded the day after it was issued and by the next administration. The Department is likely attempting a regulatory proceeding because, if there is a change, it will have effectively changed the rules. And by the time there is another administration, it will have triggered a process that cannot easily be reversed if the Department has promulgated a rule, even though it has not necessarily gone into effect.
  
  
• With a few minor exceptions, every higher ed organization, including those usually at odds with each other, like the American Council on Education and the US Chamber of Commerce, have united by saying that the Dear Colleague position is wrong.
  
  
• More than just institutions that use third-party or online services will be affected. Essentially everything short of janitorial services will or may fall under these rules, including LMS or any online program delivery software that is “rented” by an institution. This will also likely prevent institutions and those entities that work with institutions from actually being able to work together.
  
  
• The Department has likely self-sabotaged itself by essentially saying that companies that are normally subject to the foreign exclusion regulation no longer have to comply since the Department does not have that authority.

#DearColleague #HigherEducation #HigherEdPodcast

Mike Goldstein has a long history of close engagement with higher education.  He was the founding Director of New York City Urban Corps, the nation’s first large-scale student intern program designed to support access for less affluent students through the use of the Federal Work Study Program.  He went on to lead a Ford Foundation-supported effort to establish similar programs in cities across the U.S.  He returned to New York City government as Assistant City Administrator and Director of University Relations.  From there, Mike joined the then-new University of Illinois Chicago campus as Associate Vice Chancellor for Urban Affairs and Associate Professor of Urban Sciences.  In 1978 Mike joined the Washington, DC law firm of Dow Lohnes to establish a new legal practice focusing broadly on issues confronting higher education.

By 2014 when his firm merged with the global law firm Cooley LLP, the higher education practice he headed was the largest and one of the highest regarded in the country.  Mike has been a pioneer in the development of alternative mechanisms and institutional structures for the delivery of high-quality postsecondary education, including helping to accomplish substantial regulatory reforms that made telecommunicated and then online learning broadly available.  He is the recipient of the WCET Richard Jonsen Award, CAEL’s Morris Keeton Ward, the President’s Medal from Excelsior College, and USDLA’s Distance Learning Hall of Fame Award, as well as an honorary Doctor of Humane Letters from Fielding Graduate University for his contributions to the field of adult learning.  He is a graduate of Cornell University and New York University School of Law, and was a Loeb Fellow at Harvard’s Graduate School of Design.  He and his spouse Jinny, an education and media consultant and former head of education for the Public Broadcasting Service, live in Washington, DC.

Read the podcast transcript →

Dr. Drumm McNaughton, host and consultant to higher ed institutions. To find out more about his services and read other thought leadership pieces, visit his firm’s website, https://changinghighered.com/.

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