US clarifies that new oversight rules will not apply to study abroad or international student recruitment contracts

In a February 2023 “Dear Colleague” letter (DCL), the US Department of Education moved to substantially increase its regulatory oversight of third-party service providers. Essentially, the Department announced its intention to expand its oversight authority to include any third-party service provider (TPS) relationships that a US institution may have.

As we reported at the time, that February announcement was very broadly framed and led in turn to concerns that the Department’s expanded oversight may extend to other areas of ed-tech and recruitment provision, including international recruitment.

The Department of Education addressed those concerns this week with an 11 April update. In response to the 1,000+ comments gathered in its consultation on the new policy thus far, the Department says:

"Here is what we want everyone to know. The Department does not consider contracts involving the following activities to constitute third-party servicer relationships: study abroad programmes [and] recruitment of foreign students not eligible for [federal financial aid programmes]."

The Department of Education notes as well:

• That it will be "providing additional time for institutions and companies to come into compliance with the guidance. Specifically, we will delay the effective date of the guidance letter, and the 1 September 2023, date will no longer be in effect. The effective date of the revised final guidance letter will be at least six months after its publication, to allow institutions and companies to meet any reporting requirements."

• And, in an item of interest to other ed-tech and service providers, that: "We intend to remove the provision of the guidance document pertaining to foreign ownership of a third-party servicer. [However,] the number and breadth of servicers with at least some level of foreign ownership has expanded in the context of a changing higher education marketplace where institutions are adopting increasing numbers of technology-based solutions, and we believe the issue is more appropriately considered through negotiated rulemaking."

In addition to the 1,000+ written submissions to the Department, at least one provider – the online programme manager (OPM) 2U – has brought a legal action in response to the proposed rules, asserting that, "By broadening the definition of third-party servicer, the 2023 DCL imposes an expansive and onerous regulatory regime on companies that facilitate online educational programming and related services for brick-and-mortar colleges and universities but have no role in administering federal financial aid," and that, "The Department lacks unilateral authority to rewrite the [Higher Education Act]’s definition of a third-party servicer."

The discussion continues this week with the Department of Education holding three days of virtual hearings to collect further comment on this and other proposed policies affecting US higher education institutions and other stakeholders in the sector.

For additional background, please see:

• "New US Department of Education guidance alarming for ed-tech and recruitment providers"
• "US foreign enrolment once again exceeds one million students"