February 16, 2023
Education Department to Scrutinize Online Program Managers
The Department of Education announced it will hold a series of virtual listening sessions seeking public comment on incentive compensation for recruitment services, including bundled services provided by online program management (OPM) companies. Separately, the Department also released new guidance to clarify that OPMs are third-party servicers and that institutions that have agreements with OPMs are therefore subject to reporting requirements that govern such servicers.
Listening Sessions
According to the Department, the upcoming listening sessions are intended to gather comments on how guidance issued in 2011 regarding incentive compensation has “affected the growth of online enrollment and associated federal student loan debt.” The listening sessions are likely the first step toward closer regulation of – and potentially a ban on – OPMs.
The Department’s 2011 guidance, which has been controversial ever since it was issued, provides an exception to a statutory ban on incentive compensation for recruitment services. Under that exemption, colleges and universities may enter into revenue-sharing agreements with companies that offer “bundled services.”
According to the Department, the current guidance is under review, and the agency is seeking to determine, what, if any, changes should be made. To that end, the Department is seeking feedback on a series of specific questions outlined in its announcement. Feedback may be provided at the virtual listening sessions, which will be held on March 8, 2023, from 1 p.m. to 4 p.m. Eastern time and on March 9, 2023, from 1 p.m. to 4 p.m. Eastern time The Department will also accept written comments via the Federal eRulemaking portal until March 16, 2023.
New Guidance
The Department also issued new guidance clarifying that OPMs are considered to be third-party servicers for purposes of agency oversight. The new guidance signals that the Department is likely to subject OPMs to greater scrutiny in the future, as well as to more closely examine institutional agreements with OPMs.
Under the Higher Education Act, any entity that enters into a contract to administer any aspect of an institution’s Title IV program are third-party servicers. The guidance specifies that entities like OPMs that perform certain functions – including student recruiting and retention, the provision of software products and services involving Title IV administration activities, and the provision of educational content and instruction – qualify as third-party servicers.
As a result, colleges and universities that contract with entities such as OPMs and other third-party servicers are subject to certain reporting requirements, and the entities themselves are subject to annual non-federal audits of the Title IV-relevant functions they perform, if such functions are covered by the audit guide.
Background
In recent years, critics have contended that OPMs are not being properly regulated given the nature, scale, and scope of their program offerings. These critics, which include lawmakers and the media, have encouraged greater scrutiny of OPMs and, in some cases, have pushed for a repeal of the 2011 guidance. Repealing the guidance would likely mean that the agreements that some colleges and universities currently have with OPMs would violate the Higher Education Act.
More recently, the Biden Administration has also subjected OPMs to greater scrutiny. For example, in January, the Department announced that it was planning to establish a negotiated rulemaking committee this spring to examine, among other issues, third-party servicers, which presumably include OPMs. Likewise, during a recent negotiated rulemaking, the Department initially proposed regulatory amendments that likely would have significantly limited an institution’s ability to enter into revenue-sharing agreements with third parties, although the final regulations ultimately dropped the most severe restrictions on such agreements.
Given the latest developments, colleges and universities should carefully review any existing or potential agreements they have with OPMs to ensure that they are protected from any changes in federal policy and are complying with federal reporting requirements.
Listening Sessions
According to the Department, the upcoming listening sessions are intended to gather comments on how guidance issued in 2011 regarding incentive compensation has “affected the growth of online enrollment and associated federal student loan debt.” The listening sessions are likely the first step toward closer regulation of – and potentially a ban on – OPMs.
The Department’s 2011 guidance, which has been controversial ever since it was issued, provides an exception to a statutory ban on incentive compensation for recruitment services. Under that exemption, colleges and universities may enter into revenue-sharing agreements with companies that offer “bundled services.”
According to the Department, the current guidance is under review, and the agency is seeking to determine, what, if any, changes should be made. To that end, the Department is seeking feedback on a series of specific questions outlined in its announcement. Feedback may be provided at the virtual listening sessions, which will be held on March 8, 2023, from 1 p.m. to 4 p.m. Eastern time and on March 9, 2023, from 1 p.m. to 4 p.m. Eastern time The Department will also accept written comments via the Federal eRulemaking portal until March 16, 2023.
New Guidance
The Department also issued new guidance clarifying that OPMs are considered to be third-party servicers for purposes of agency oversight. The new guidance signals that the Department is likely to subject OPMs to greater scrutiny in the future, as well as to more closely examine institutional agreements with OPMs.
Under the Higher Education Act, any entity that enters into a contract to administer any aspect of an institution’s Title IV program are third-party servicers. The guidance specifies that entities like OPMs that perform certain functions – including student recruiting and retention, the provision of software products and services involving Title IV administration activities, and the provision of educational content and instruction – qualify as third-party servicers.
As a result, colleges and universities that contract with entities such as OPMs and other third-party servicers are subject to certain reporting requirements, and the entities themselves are subject to annual non-federal audits of the Title IV-relevant functions they perform, if such functions are covered by the audit guide.
Background
In recent years, critics have contended that OPMs are not being properly regulated given the nature, scale, and scope of their program offerings. These critics, which include lawmakers and the media, have encouraged greater scrutiny of OPMs and, in some cases, have pushed for a repeal of the 2011 guidance. Repealing the guidance would likely mean that the agreements that some colleges and universities currently have with OPMs would violate the Higher Education Act.
More recently, the Biden Administration has also subjected OPMs to greater scrutiny. For example, in January, the Department announced that it was planning to establish a negotiated rulemaking committee this spring to examine, among other issues, third-party servicers, which presumably include OPMs. Likewise, during a recent negotiated rulemaking, the Department initially proposed regulatory amendments that likely would have significantly limited an institution’s ability to enter into revenue-sharing agreements with third parties, although the final regulations ultimately dropped the most severe restrictions on such agreements.
Given the latest developments, colleges and universities should carefully review any existing or potential agreements they have with OPMs to ensure that they are protected from any changes in federal policy and are complying with federal reporting requirements.
For more information, please contact:
Jody Feder