The Department’s position is that it is a violation of the HEA for an institution or a third-party servicer to use contractual language that prevents current or former personnel from communicating with the Department.
On July 13, 2023, the Office of Federal Student Aid issued an enforcement bulletin notifying institutions that using nondisclosure agreements (NDAs) or similar contracts that prevent or discourage current or former employees from communicating with the U.S. Department of Education may violate a requirement of cooperation with the Department under the Higher Education Act (HEA) and could result in enforcement action.
Specifically, the Department states that when an institution signs a program participation agreement, it agrees to comply with 34 C.F.R. § 668.24(f), which requires an institution and its third-party servicers to cooperate with the Department regarding audits, investigations, program reviews or other reviews authorized by law. In addition, third-party servicers are subject to a similar requirement to cooperate with the Department. According to 34 C.F.R. § 668.24(f)(2)(ii), such cooperation includes “providing reasonable access to personnel associated with the institution’s or servicer’s administration of the title IV, HEA programs for the purpose of obtaining relevant information.”
The Department’s position is that it is a violation of the HEA for an institution or a third-party servicer to use contractual language that prevents current or former personnel from communicating with the Department. Institutions and third-party servicers that do not comply with the Title IV regulations could face administrative action. The enforcement bulletin also notes that even when an NDA does not explicitly prohibit communication, some provisions may improperly create the “appearance or perception” that personnel are limited in their legal ability to communicate with the Department in violation of the institution’s responsibilities under 34 C.F.R. § 668.24(f). This regulation is a record retention and examination regulation that requires institutions and third-party servicers to cooperate with:
[A]n independent auditor, the Secretary, the Department of Education's Inspector General, the Comptroller General of the United States, or their authorized representatives, a guaranty agency in whose program the institution participates, and the institution's accrediting agency, in the conduct of audits, investigations, program reviews, or other reviews authorized by law.
Such cooperation must include providing timely access to records, information and personnel associated with the institution or servicer's administration of the Title IV HEA programs for the purpose of obtaining relevant information. The regulation provides that an institution or servicer has failed to provide reasonable access to personnel if the institution or servicer refuses to allow those personnel to supply all relevant information.
The Department takes the position that a provision in an NDA or similar agreement that states that current or former personnel are only able to communicate about the institution to report “possible violations of any law, rule or regulation to any governmental agency or entity charged with enforcement of any law, rule or regulation” or “other disclosures that are protected under whistleblower provisions of any law, rule or regulation” are overly narrow and therefore impermissible under 34 C.F.R. § 668.24(f).
All institutions and third-party servicers should now consider themselves on notice by the Department that they may neither limit nor condition the participation by former and current employees in cooperating with any request for information by the Department. Institutions and third-party servicers should consider a review of the language in any NDAs, settlement agreements, employment contracts and other similar templates currently utilized to ensure compliance. In our experience, NDAs routinely include language making them unenforceable with respect to responding to any governmental agency inquiries, and the cited problem can be solved simply by including language making clear that cooperation with the Department or any government agency is not covered by the NDA.
Finally, the enforcement bulletin encourages current and former employees, vendors, contractors of postsecondary institutions, third-party servicers, third-party lead generators, students or any other relevant individual wishing to report any potential violations of Title IV programs, including concerns about NDAs, to submit relevant information to ed.gov/FSAtips, indicating that the Department is looking to identify noncompliance for potential future enforcement action.
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If you have any questions about this Alert, please contact Katherine D. Brodie, Anthony J. Guida Jr., Edward Cramp, Kristina Gill, any of the attorneys in our Higher Education Group of the attorney in the firm with whom you are regularly in contact.
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