Senators: No More Federal Funding To For-­Profit Colleges That Strip Students Of Legal Rights

If your college breaks the law, you should be able to pursue a legal action in court. But ­­following the lead of banks, wireless providers, and cable companies some for-profit colleges have been stripping students of their legal rights and forcing them into arbitration. These schools should not receive federal funding, says one group of lawmakers.

Forced arbitration not only takes away the student’s ability to have their day in court, it often prohibits students with the same complaint from joining their claims together into a single action.

There is pending legislation that seeks to bar schools from using mandatory arbitration if they want to receive federal funds, but that has been stuck in committee since last April. So now, some senators are calling on the Department of Education to simply cut off funding to these schools.

Yesterday, nine senators sent a letter to education Under Secretary Ted Mitchell, calling on the regulator to use its authority under the Higher Education Act to deny federal Title IV funding to any college or university that includes forced arbitration clauses or other contractual barriers to court access in their student enrollment agreements.

“Unfortunately, the use of forced arbitration clauses, including class action bans, by many for-profit education companies has prevented victimized students from holding for-profit education companies accountable in court for their misconduct and has prompted students instead to seek relief from the Department of Education and the taxpayers,” the senators, including Dick Durbin (IL), Sherrod Brown (OH), Richard Blumenthal (CT), Barbara Boxer (CA), Al Franken (MN), Ed Markey (MA), Jeff Merkley (OR), Chris Murphy (CT) and Sheldon Whitehouse (RI), wrote.

Under the Higher Education Act, the Dept. has the authority to require insinuations of higher education to agree, in their program participation agreement, not to include binding arbitration clauses, bans on class actions, or other contractual barriers in their student agreements.

The use of arbitration clauses has skyrocketed by companies – including many in the for-profit education sector – since 2011, when the U.S. Supreme Court affirmed that it was perfectly okay for companies to take away a consumer’s right to sue or their ability to join other wronged consumers in a class action case by inserting a paragraph or two of text inside lengthy contracts.

By using arbitration clauses, for-profit colleges such as the now-defunct Corinthian Colleges Inc have shielded themselves from taking responsibility for their own alleged deceptions such as misrepresented job placement statistics.

Colleges that use arbitration clauses also retain the right to choose their own arbitrator and other key aspects of the potential dispute resolution process.

The Senators cite a Health, Education, Labor, and Pension Committee investigation that found 21 of 27 for-profit education companies used forced arbitration clauses in their enrollment agreements.

“The vast majority of non-profit institutions of higher education do not include forced arbitration clauses or other barriers to court access in their enrollment agreements,” the Senators wrote. “If a for-profit college deceives students about cost, transferability of credits, program quality, job placement, salary after graduation, or other claims, these students should have the right to hold them accountable.”

The Senators claim that by banning the use of forced arbitration clauses, the Dept. would be able to better oversee the for-profit education industry. As it currently stands, students are deterred from filing claims of potential fraud because there is little they could gain from doing so.