IE 11 Not Supported

For optimal browsing, we recommend Chrome, Firefox or Safari browsers.

New Policy to Give ED Some Oversight of Ed-Tech Companies

Starting in September, ed-tech companies that handle programs funded by Title IV, such as student recruitment, will be subject to reporting and audit requirements established by the U.S. Department of Education.

A magnifying glass propped up in front of a keyhole as if being used to look through it.
As colleges and universities have increasingly moved to online programming and digitized services, many have contracted with ed-tech companies for programs that use Title IV funding, a student financial aid allowance that sponsors efforts in student recruitment, youth development, technology literacy, counseling and drug prevention, among many others. These companies, sometimes called online program managers (OPMs), have historically helped administer programs that use Title IV funding without the same government oversight as institutions that use the funding. That’s about to change.


According to new guidance issued in February by the U.S. Department of Education, effective Sept. 1, 2023, the department will label as third-party servicers (TPS) any companies that handle student recruiting, sell software or administer IT services that manage Title IV programs, or provide educational content and instruction. As such, these ed-tech companies will be subject to oversight by the department in the form of reporting requirements and annual non-federal audits of their work related to Title IV programs.

Specifically, the new guidance says institutions can’t contract with a company to perform these services if it:

  • Is located outside the U.S. or run by someone who is not a U.S. citizen or permanent resident.
  • Has been suspended or terminated by the secretary of education in the preceding five years.
  • Has had either of its two most recent audits result in the company repaying more than 5 percent of the Title IV funds it administered that year.
  • Has been cited within the past five years for not submitting audit reports.

The new policy also bans these companies from direct or indirect incentive compensation for recruiting students or securing financial aid for them.

The implications of this policy could be far-reaching: An April 2022 report from the Government Accountability Office found that as of July 2021, at least 550 institutions had contracted with an OPM. What’s more, the market research firm Research and Markets in December projected that the global online learning market will grow by $148 billion — a 17 percent increase — between 2022 and 2027 as demand for flexible online course options continues to grow.

To help mitigate concerns about its new policy for third-party servicers, the department simultaneously announced plans to host virtual listening sessions to discuss how higher ed institutions should compensate recruiters, as well as regulations for third-party companies that provide bundled products and services, like recruitment services. According to its news release, the department is requesting public comments from institutions, faculty, OPMs, researchers, students and other stakeholders regarding these policy changes. It said department officials will accept written feedback until March 30 and comments at virtual sessions set for next week, adding that officials will take those comments under consideration and publish any changes based on their feedback at an uspecified later date.

The department further noted that the Higher Education Act of 1965, which created Title IV, prohibits institutions from providing entities large bonuses or commissions from revenue share agreements based on enrollment growth or obtaining financial aid. However in 2011, the department issued guidance that appeared to make exceptions for third parties that provide recruitment services as part of “bundled services.” Since then, the number of students recruited by third-party vendors covered under the loophole has increased dramatically, along with the growth of OPMs providing bundled services to run online courses.


Stephanie Hall, a senior fellow at the liberal policy advocacy group Center for American Progress, noted in an email to Government Technology that many third-party servicers have operated without adequate regulations and oversight in recent years, amid aggressive efforts by schools to recruit students and OPMs to sell their services. She added that the department’s clarification and call for oversight will help remedy the issue by giving the department a window into the finances and operations of third-party servicers.

“The Department of Education’s updated guidance on third-party servicers takes a crucial first step toward collecting information and conducting oversight of third-party vendors that recruit online students on behalf of colleges and universities,” she wrote, adding that new guidance is a “great step toward protecting prospective online students.”

“Many public and nonprofit colleges rely on for-profit third-party vendors to develop, market and recruit for their online degree programs. Because of an exception to the federal ban on incentive compensation payments to recruiters, colleges are able to pay these types of vendors through revenue-sharing arrangements. Such arrangements set up perverse incentives that could lead the vendor to use high-pressure sales tactics, rather than engaging in legitimate admissions advising,” she wrote. “The [bundled services] exception was created to give colleges some flexibility when it came to launching online programs and is no longer necessary in its current form. The listening sessions are hopefully just the beginning of a process to rescind or revise the 2011 guidance.”

According to Clare McCann, a higher education fellow at the investment fund Arnold Ventures, third-party servicers and the OPM industry have witnessed significant revenue growth over the past decade by taking advantage of the “loophole” regarding incentive compensation for recruitment. According to a February report from Higher Ed Dive, for example, the OPM provider 2U recently recorded $1 billion in annual revenue, compared to nearly $30 million in 2011.

“At this point, [OPMs are] a multibillion-dollar industry, and hundreds of colleges are now working with OPM companies,” McCann told Government Technology. “They have come under scrutiny for some of their practices and some of the prices charged for these programs. … All of these things combined have created an environment where the department has acknowledged that it needs to take another look at this guidance to determine whether it’s still appropriate or whether it’s causing problems.”

McCann said there’s “broad agreement” that the bundled-services loophole is inconsistent with the law.

“OPMs seem to be engaging in some of the things the incentive compensation ban was designed to prevent,” she said. “It seems pretty clear to me that the guidance needs to be more consistent with the law.”

In an emailed statement to Government Technology, 2U spokeswoman Kate Welk said the company understands the department’s aims in taking a closer look at OPMs amid the student debt crisis. However, she wrote, the company disagrees with “the misguided argument that providing greater access to online education through public-private partnerships is responsible for the growth in student loan debt.”

Welk also noted that the company has worked to help institutions provide affordable courses on its edX platform, and other options in the form of microcredentials and over 200 tech boot camps.

“We welcome the opportunity to share additional thoughts on bundled services and third-party servicer guidance,” Welk wrote. “Innovation in education is critical to our country, and 2U and businesses like us have become a vital part of driving innovation, access and affordability in the higher education ecosystem.”
Brandon Paykamian is a staff writer for Government Technology. He has a bachelor's degree in journalism from East Tennessee State University and years of experience as a multimedia reporter, mainly focusing on public education and higher ed.
Andrew Westrope is managing editor of the Center for Digital Education. Before that, he was a staff writer for Government Technology, and previously was a reporter and editor at community newspapers. He has a bachelor’s degree in physiology from Michigan State University and lives in Northern California.