On April 11, 2023, James Kvaal, U.S Under Secretary of Education (ED), took the extraordinary step of issuing a blog post to issue calm to the thousands of education access and success nonprofits, tech companies, and even state governments that were slated to now be included in the definition of “Third Party Servicers,” based on a Dear Colleague Letter (DCL) issued less than two months previously. That DCL was also famously paired with an announcement that ED would solicit public comments and feedback on the current “bundled services safe harbor” exception to the ban on incentive compensation which prohibits institutions of higher education from providing a commission or bonuses to individuals or entities based on securing enrollment or financial aid.
On July 17, 15 months after the first blog post, Kvaal released yet another blog post indicating what was already assumed by many: the definition of Third Party Servicers would not be expanded through a DCL. Crediting more than 1,000 comments received on the initial DCL, any changes by this Administration around TPS moving forward will be approached through rulemaking, a time consuming process that would have to be enacted after the election. Leaning on rulemaking for TPS regulation also now brings into play a post-Chevron deference environment that creates a higher bar for agencies and gives courts more power to weigh in on proposed rules.
In addition to confirming what was already assumed regarding TPS expansion, the blog post touched on the next steps for the incentive comp safe harbor mentioned in the February 2023 ED announcement. ED again punted on next steps for revisiting this exception, noting that it is still reviewing comments and indicating any new guidance would be issued “no sooner than late this year.”
This further delay is big news for those paying close attention to the issues of revenue share. ED so far has seemed to want to play it carefully on guidance that could easily impact a massive number of students at institutions partnering with providers that leverage the safe harbor, including OPMs. Notably, the blog’s update on the safe harbor comes after Minnesota became the first state in the U.S. to pass a ban on tuition sharing between public state colleges and OPMs when the OPM’s services include recruitment and marketing.
The move, while not surprising, is the first formal notice in some time about the latest stage of the incentive compensation safe harbor review. As a quick reminder, more than 13 years ago, ED issued a DCL that established a “bundled services” safe harbor from the Higher Education Act’s ban on incentive compensation, allowing institutions of higher education to share tuition with third parties offering recruitment services when bundled with other services.
That exclusion has been hotly debated due to the massive growth of Online Program Managers (OPMs) which have been heavily criticized for attracting students to high cost, low return programs. In the spring of 2022, the U.S. Government Accountability Office (GAO) issued a report which found at least 550 colleges work with OPMs. At the time, GAO urged additional monitoring.
Speaking of OPMs, another factor that may impact ED’s prioritization of this issue among many others (including rulemaking, FAFSA, and loan forgiveness) is the announcement of 2U’s bankruptcy. 2U has long been in the spotlight, often for the wrong reasons, generating a significant amount of attention to OPM regulation. One key thing to watch will be if 2U can weather the bankruptcy, or if it fails and there is an impact on students, what the reaction will be from policymakers and regulators.
