Do You Know Your Third Party Servicers?

Melissa Maichle .

Federal Student Aid’s (FSA) February 15 Dear Colleague Letter created a bit of a stir in the higher education community and while the update on February 28 extended the period for compliance from May to September, the broadened definition of a Third Party Servicer (TPS) will change the nature of relationships we currently have with many vendors.

In general, an entity is considered a TPS if it performs any function on behalf of the institution that enables the institution to participate in the Title IV financial aid programs. There are some obvious relationships — like using a vendor to collect and review verification documents or one to try to intervene with former students who are at risk of defaulting on Stafford loans. With the broadened definition there are many more vendors that may be considered a TPS and some of which the Financial Aid Office may not even be aware. For example, a company that administers online courses in a Title IV eligible academic program is now likely to fall under this umbrella for the first time.

Vendors with which your institution has a ‘TPS’ relationship must meet the following criteria:

  • The TPS must operate in the United States and be owned/operated by an individual who is a US citizen or lawful permanent resident. This applies to all institutions receiving Title IV aid —even those outside the US.
  • The TPS cannot have been limited, suspended, or terminated by the Secretary within the preceding five years.
  • The TPS cannot have had, during the TPS’ two most recent audits, an audit finding that resulted in the TPS being required to repay an amount greater than five percent of the funds that the servicer administered under the Title IV programs for any award year.
  • The TPS cannot have been cited during the preceding five years for failure to submit audit reports in a timely fashion.

The factor that differentiates a TPS from a non-TPS vendor is that the institution and TPS are held jointly liable when there is a compliance breech in the area the TPS is assisting/managing.

So, who could be a TPS on your campus? It will take some work to figure that out particularly because an individual company may have a TPS relationship with one institution and just a regular vendor relation with another depending on the services provided. And, since this is an institutional requirement there’s no reason not to make it a team effort on your campus — divide and conquer! The best place to start is the FSA Handbook, School Eligibility and Operations. For each activity required of your institution determine who is actually doing the work. Then, think through the student experience at your institution from application to graduation and beyond to identify any other services that are provided to or affect your Title IV aid recipients. Once your list is complete, do your research to ensure each meets the requirement in the bulleted list above.

Determining whether a vendor is considered a TPS under these rules can be complicated. Many of the answers in the Question and Answers document attached to the DCL are ‘maybe’, so we encourage you start thinking about this soon so that you’re ready when the final guidance is provided in September. As always, if you have questions about this or any other regulatory requirement, email to connect with one of our compliance experts.