2U is suing the Department of Education over service directives provided by a third party

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Maryland-based 2U, one of the largest online providers of higher education, is suing the Department of Education over tight regulations of its contracts with colleges and universities.

The suit, filed Tuesday in the US District Court for the District of Columbia, seeks to dismiss the lawsuit guidance Issued by the department in February that expands the definition of third-party services to include online program managers, otherwise known as OPMs. The ranking requires companies to report and subject their business dealings with schools to scrutiny.

The ministry initially gave institutions until May to comply but pushed back the date to September. Failure to comply puts colleges at risk of losing access to federal loans and grants. Management invited comments on the guidance to clarify areas that were not clear or could be improved and received more than 1,000 letters.

However, 2U claims that the administration has overstepped its authority and violated procedural law by implementing regulations without sufficient public intervention or reasonable time for organizations to comply with what it considers to be massive changes. The company argues that the department’s broad definition of third-party service is inconsistent with the Higher Education Act, which assigns this title to companies that process, dispose of, or provide financial assistance. It also says the changes will increase compliance costs and liability risks, and will likely force many of the universities it supports out of the market.

“2U cares deeply about our partnerships with leading nonprofit colleges and universities across the country, and we believe that this latest action by the Department of Education will not only impact our ability to serve their students, but ultimately harm the quality of their education,” said Matthew J. Norden, 2U’s chief legal officer, in a statement. “While we regret that this case has to be brought, students must be protected from the disruption and uncertainty that arbitrary rule-making creates.”

The Education Department declined to comment on the pending lawsuit. But a spokesperson for the agency said the guidance is “intended to provide clarity on current requirements regarding companies that work with colleges around the administration of federal student aid.”

“The department ensures that colleges remain accountable to students and taxpayers for college costs and student debt, which includes greater transparency when colleges contract with a third party on essential aspects of student education,” said the spokesperson.

The agency’s directive gives it greater oversight over online program directors Lawmakers have called for more corporate transparency and oversight.

OPMs, which help colleges develop and market online courses, have become a mainstay of higher education as more schools try to expand their reach and boost revenue. Lawmakers have called into question whether the OPM model is for recruiting prospective students for the programs In exchange for a share of the education proceeds from those who enroll, the federal prohibition on incentive compensation is violated.

Congressional Democrats wrote to Education Secretary Miguel Cardona in December urging him to conduct a formal legal review of whether education revenue-sharing arrangements are permissible. This pressure gave way to continued review by the department of a 2011 exception to the ban that allowed companies to share tuition fees with schools as long as they provided a range of services in addition to employment.

The agency asked for public comment on whether the withholding should remain in place on the same day it issued the guidance. Both were widely seen as responses to the Government Accountability Office of 2022 a report That recommended the department investigate tuition-sharing deals and monitor OPM’s contracts with colleges.

But some higher education stakeholders say the ministry is casting a net too wide to regulate one industry. Among the critics of the guidance University of California And University of Texas He says the department’s definition of outside service providers is now so broad that it will touch on nearly every area of ​​the university’s operations. The directive, for example, bars schools from working with foreign contractors, which colleges say could hinder study abroad programs.

“In the absence of greater clarity from the department, the complexity of these guidelines may lead institutions to cancel contracts and/or avoid purchasing services most critical to student success,” Archie Holmes, executive vice chancellor for academic affairs at the University of Texas System, wrote in a statement. comment message on guidance.

Some colleges and companies have complained about the short implementation timeline, prompting the department to adjust the date. Others called on the agency to scrap the rule.

Former Undersecretary Ted Mitchell, who is now President of the American Council on Education, introduced A comment On behalf of more than 80 higher education associations, it asks the administration to rescind the directive and proceed with the rule-making process to craft a comprehensive regulation.

The board estimates that under the new guidance, the number of service workers will increase from several hundred to tens of thousands.

We are not clear how management intends to review or ensure appropriate oversight of tens or hundreds of thousands of contracts, and contract amendments, with outside entities that are subject to [guidance] It should now be reported to management,” Mitchell wrote. “Instead of taking a targeted approach that would address legitimate areas of concern, if left unmodified [guidance] It will make it difficult to identify the real problems amidst an avalanche of information.”