Today, nine Senators, led by Sherrod Brown (D-OH) and Dick Durbin (D-IL), called on the U.S. Department of Education to cut off federal student aid to colleges and universities that bar their students from going to court to pursue claims against their schools.
Addressing the same issue, some of the negotiators participating in the Department's ongoing negotiated rulemaking on higher education issues are putting a similar proposal on the table ahead of next week's meeting.
In their letter to Under Secretary of Education Ted Mitchell, the senators note that many for-profit colleges, and almost no non-profit colleges, use enrollment agreements containing mandatory arbitration clauses -- fine print provisions that require students to pursue any legal claims against their schools before a private arbitrator, rather than in a courtroom.
The Senators argue that the Higher Education Act's provisions requiring schools to enter into program participation agreements with the Department can be used to require a ban on mandatory arbitration as a condition for schools receiving federal funds.
"If a for-profit college deceives students about cost, transferability of credits, program quality, job placement, salary after graduation, or other claims," the Senators wrote to Mitchell, "these students should have the right to hold them accountable."
Mandatory arbitration requirements tend to favor the corporations that impose them, rather than individual consumers or students, because the parties must often pay high fees to the arbitrator, and arbitrators can have incentives to rule for the corporation in hopes of getting repeat business. These fine print provisions often also bar students from joining class action lawsuits or otherwise combining their claims with other students, thus making it harder to find a lawyer with enough financial incentive to take a case. If wronged students can't recover from their schools, they may be more likely to seek forgiveness of their federal loans, increasing the burden on taxpayers. To make matters worse, arbitration agreements are conducted behind closed doors, so the public, including other students, don't learn about any wrongdoing. Denying individuals the option of filing a lawsuit thus reduces the deterrence that encourages corporations to comply with the law and treat individuals fairly.
In addition, consider that mandatory arbitration clauses don't just cover issues relating to for-profit colleges deceiving and defrauding students about financial matters and their educations. If a student, for example, is assaulted on campus by a school employee, a mandatory arbitration clause can force that student to address the issue with the school before an arbitrator, rather than a judge and jury.
The Department of Education is at last stepping up to enforce its rules and guard against abuses by colleges against their students. It has stopped insisting that it is powerless to act against predatory schools, and stopped bowing to the hectoring and threats of high-priced lawyers, lobbyists, and Members of Congress in thrall to the for-profit colleges that line their campaign pockets. The Department, which has been sending as much as $32 billion a year to the for-profit college industry, has every right to condition that money on the colleges respecting the legal rights of students. The Department should act promptly to ensure those rights.
UPDATE 02-24-16: Today the consumer advocacy organization Public Citizen submitted a detailed petition to the Department of Education asking the Department to issue a rule requiring colleges to agree, as a condition of receiving federal student aid, not to include mandatory arbitration clauses in enrollment agreements. The Public Citizen petition also urges the Department to consider restricting other barriers to students seeking relief, such as enrollment agreements that prohibit students from requesting a jury trial. (Disclosure: I serve on the board of directors of Public Citizen Foundation.)
Today, eight veterans service organizations -- the Air Force Women Officers Association, Iraq and Afghanistan Veterans of America, Military Child Education Coalition, Student Veterans of America, Tragedy Assistance Program for Survivors, VetsFirst, Veterans Education Success, and Vietnam Veterans of America -- sent a letter to Acting Secretary of Education John King asking the Department for a rule requiring educational institutions to agree, as a condition on receipt of student aid, not to include forced arbitration clauses. The groups also asked the Department to make clear that schools cannot block students from filing complaints with government agencies, including the Education Department, Veterans Affairs, Department of Defense, or the Consumer Financial Protection Bureau. The letter notes a disturbing practice by predatory for-profit ITT Tech: "When student veterans have filed a complaint with VA, ITT has responded by first admonishing the student for going to VA and not using ITT's internal grievance procedure.... A school does not have the right or the legal authority to prevent veterans from seeking help from the VA."
On March 4, 47 student, veteran, civil rights, consumer protection, education, and civil justice organizations -- including the NAACP, The Leadership Conference on Civil and Human Rights, League of United Latin American Citizens, Consumers Union, and the American Association of State Colleges and Universities -- wrote to Secretary King and called on the Department to act on the Public Citizen petition and protect students by prohibiting mandatory arbitration clauses.
On March 9, House Education and Workforce Committee Ranking Member Robert C. "Bobby" Scott (D-VA) and House Financial Services Committee Ranking Member Maxine Waters (D-CA) sent a letter to President Obama urging that the ongoing Department of Education rulemaking proceedings lead to stronger debt relief protections, and their critiques of Department proposals thus far included this: "The regulation also fails to address the proliferation of binding arbitration clauses in higher education, which have the potential to keep even the most legally adept borrowers out of court and prevent them from doing the discovery necessary to succeed on a borrower's defense claim."
My original post should have noted that the Fair Arbitration Now coalition wrote to Under Secretary Mitchell back in January 2015, arguing, as I and others had been, that ECMC, the acquirer of many of the former Corinthian Colleges campuses, should not be permitted to continue the Corinthian practice of forcing students into arbitration. That coalition's letter makes the important point that, notwithstanding the Federal Arbitration Act and other endorsements in the law of arbitration agreements, Congress has on numerous occasions acted to protect the rights of parties to sue in various contexts, and that the executive branch also has acted to bar arbitration clauses by companies benefitting from federal programs in instances where Congress did not explicitly ban arbitration.
The original post also should have pointed out that the blockbuster 2012 report on the for-profit college industry by Senator Tom Harkin and his Senate Health Education Labor & Pensions Committee examined the use of mandatory arbitration clauses and made a recommendation that pointed the way:
Making Students Whole-Arbitration Clauses
Twenty-one of the twenty-seven enrollment agreements produced to the committee by for-profit education companies contained a clause that required students to go through a process of mandatory binding arbitration. Because the recent Supreme Court decision, AT&T Mobility v. Concepcion, held that arbitration claims may not be joined in a class action, students who may have been similarly deceived with regard to cost, likelihood of obtaining a job, or likely salary cannot in most cases join together to sue the school. The investigation has documented that these practices are occurring at a number of forprofit schools, but these students are left with little recourse. Students should have the right to pursue a class action lawsuit against their former colleges if the college deceived them about costs, student loans, programs, job placement or salary after college, and not be forced into arbitration as most enrollment contracts currently stipulate.
Recommendation: Require that institutions of higher education accepting Federal financial aid may not include mandatory binding arbitration clauses in enrollment agreements.
In advance of its next rulemaking session, the Department of Education issued a draft proposal that could protect students against efforts by for-profit colleges to force them into arbitration. Details in my post here.
Last year, in the lawsuit brought against faltering for-profit giant ITT Tech by the New Mexico attorney general, ITT argued that the case should be stayed in favor of mandatory arbitration because New Mexico was suing to vindicate student claims, and the students' enrollment agreements required arbitration of disputes. The New Mexico trial judge rejected that motion, but ITT has appealed, delaying resolution of the case. So mandatory arbitration clauses can be used not only to interfere with claims brought by students but also claims brought by law enforcement agencies -- with the company's lawyers paid, as with everything else, using taxpayer dollars.
At the negotiated rulemaking session on March 18, 2015, the Department took a step back, favoring an option that only limited, but did not ban, mandatory arbitration. Public Citizen released a statement arguing for the total ban.
On April 25, 2016, the Leadership Conference on Civil and Human Rights, joined by 20 organizations, sent a letter to Secretary of Education John King urging the Department to ban institutions receiving federal aid from forcing their students into arbitration. The letter states in part:
Given the widespread problems of fraud, misrepresentation, and discrimination, the massive issue of sexual assault on campuses, and the serious need for transparency as a means to ensure accountability and spur improvement, it should be against public policy for the Department to allow recipients of Title IV funds to escape accountability through the use of forced arbitration. Too many students have already suffered at the hands of for-profit institutions that failed to deliver on their promises or adequately address safety issues on campus. We cannot require these same students to leave crucial legal rights and protections at the school house door.
This article also appears on Republic Report.