Submitted by Cheryl Dowd on
Guidance

Third Party Servicer Guidance

Description 

A February 2023 Dear Colleague Letter (DCL) updated 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 Higher Education Act of 1965, as amended (HEA).  The February 2023 DCL expanded the definition of a Third Party Servicer.  

  • The February 2023 guidance was rescinded.
  • The prohibition of foreign-owned or operated third party servicers that was originally published in 2016 Guidance and restated in the February 2023 was also rescinded.
  • Dear Colleague Letters GEN 12-08, GEN 15-01, GEN 16-15, as modified by the March 8, 2017 electronic announcement, and GEN-23-08 remain in effect.

The updated guidance adopts the earlier, narrower definition of a third-party servicer, now focusing only on administrative and financial aid tasks. When an institution’s contract qualifies as one with a third-party servicer, both the institution and the servicer face extra reporting requirements and legal responsibilities.

Action to be taken

Institutions should consider four important steps:

  • Review Current Contracts – Confirm whether any vendors perform Title IV functions (e.g., financial aid processing, disbursement, reporting). Only those functions fall under the current third-party servicer rules.
  • Maintain Required Agreements – Ensure contracts with true third-party servicers include the federally required provisions (e.g., compliance with Title IV rules, access to records by ED, clear delineation of responsibilities).
  • Submit Third-Party Servicer Contracts – Institutions must report arrangements with third-party servicers to the Department of Education through the E-App (Electronic Application for Approval to Participate in Federal Student Aid Programs).
  • Monitor Misrepresentation Risks – Even if a vendor is not a third-party servicer under the narrow definition, institutions remain responsible for ensuring vendors do not make false, misleading, or aggressive recruitment or marketing claims.

Publication Date

  • January 9, 2015, with further clarification published May 2023. 

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