47 Groups Call on Department of Education to Halt Federal Funding for Predatory Schools

The U.S. Department of Education should act on a Public Citizen petition (PDF) to deny Title IV funding to colleges that require students to submit to binding arbitration in future disputes with their schools, a coalition of 47 student, veteran, civil rights, consumer protection and civil justice organizations said in a letter (PDF) today.

The practice, known as "forced arbitration," requires students to give up their right to court proceedings and a jury and instead forces them into privately-administered arbitration to challenge any wrongdoing committed by a school.

The petition followed a letter sent by nine U.S. senators to the Department of Education asking the agency to take action on the use of forced arbitration clauses. Additionally, on Feb. 11, in the department's ongoing negotiated rulemaking for federal student aid programs, a legal services advocate submitted a proposal (PDF) making a similar request, and the negotiated rulemaking panel showed broad support for protecting students from forced arbitration. In light of these requests by members of Congress and advocates for students and borrowers, the time to act is now, the letter says.

The petition urges the Department of Education to issue a rule barring educational institutions from including pre-dispute arbitration clauses in enrollment or other agreements with students, as a condition of receiving Title IV assistance, which includes Stafford, PLUS and Perkins loans as well as Pell grants.

"Today's coalition letter marks agreement by a broad range of groups that it is time for the department to address the harmful effects of arbitration clauses on students and federal aid programs," said Julie Murray, an attorney for Public Citizen. "These clauses don't benefit the public or students who dream of an education," she said. "They benefit the bottom lines of education companies."

The coalition expressed serious concern about the impact of forced arbitration proceedings--including the secrecy surrounding them--on the department's ability to identify and address fraud. Private arbitration shields critical information from public view and regulators, and allows for-profit schools like Corinthian College to escape accountability for years. The Department of Education must adopt the recommendations of the citizen petition to act as a responsible steward of federal aid programs, the letter says.

Arbitration overwhelmingly favors the schools. As the coalition says in its letter, students lose their constitutional right to a jury trial; the rules of evidence do not necessarily apply; discovery of relevant evidence may be severely limited; and the losing party's right to court review of an arbitrator's decision is very limited. Arbitration clauses also often prevent students from joining their claims together in class-action lawsuits and include other explicit waivers of rights.

Few students are aware that these clauses are in their contracts or that the clauses preclude them from going to court or joining with other students in class-action suits to address misconduct by their schools. Even when they do know, many students feel compelled to sign, because refusing means forgoing the educational benefits they hope to receive.

"The for-profit college industry should not be able to profit from federal tax dollars while defrauding its students and escaping liability by hampering the exercise of students' legal rights through forced arbitration clauses," said Sonia Gill, counsel for civil justice and consumer protection for Public Citizen.

"The Department of Education must do everything it can to protect the interests of students and families being defrauded by unscrupulous for-profit entities engaged in predatory practices. Students of color and their families, who are often their targets, need to have every recourse available to hold institutions accountable," said Luis A. Torres, director of policy and legislation for the League of United Latin American Citizens. "If the Department of Education funnels taxpayer money to for-profit entities with forced arbitration policies, it puts vulnerable students at a considerable disadvantage. As a steward of public educational funds, the department cannot give fraudulent institutions a blank check, but must instead earn the trust of its intended beneficiaries by holding such institutions accountable whenever taxpayer dollars are involved."

"Schools receiving taxpayer funding should not be allowed to hide fraud and avoid accountability through pre-dispute forced arbitration," said Jennifer Wang, DC office director for The Institute for College Access & Success. "High-quality colleges don't force their students to sign away their legal rights, and taxpayers should not subsidize colleges that do." "The Department of Education continues to send federal student loan money to schools that rob students of the right to sue in court if their schools break the law. That is unacceptable. Withholding Title IV funding from schools that deny this basic right wouldn't just protect students - it'd help protect us all as taxpayers," said Alexis Goldstein, senior policy analyst for Americans for Financial Reform.