For-profit colleges that require students to sign away their legal rights, forcing them into arbitration in order to enroll in classes should not receive federal financial aid, a coalition of 47 consumer advocacy groups urged acting Secretary of Education John King on Friday. 

The group, composed of our colleagues at Consumers Union, Consumer Federation of America, Higher Ed, Not Debt, and others, urged King to deny Title IV funding to colleges that require students to submit to binding arbitration in future disputes with their schools.

“We are deeply concerned about predatory schools in the for-profit college industry that defraud students and families while profiting from federal aid. These schools offer low-quality, high-priced programs, shortchange students in their support service offerings, and often misrepresent their abysmal graduation and job-placement rates,” the coalition writes in the letter [PDF].

The action was laid out in a petition [PDF] started by Public Citizen after nine senators sent a letter to the Department of Education asking for action on schools that use forced arbitration in mid-February.

Advocates and lawmakers are asking the Dept. of Education to craft a rule that would bar 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,” Julie Murray, an attorney for Public Citizen, said in a statement. “These clauses don’t benefit the public or students who dream of an education,” she said. “They benefit the bottom lines of education companies.”

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.

The advocacy groups and lawmakers argue that forced arbitration clauses overwhelmingly favor schools.

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.

“Schools receiving taxpayer funding should not be allowed to hide fraud and avoid accountability through pre-dispute forced arbitration,” Jennifer Wang, DC office director for The Institute for College Access & Success, said in a statement. “High-quality colleges don’t force their students to sign away their legal rights, and taxpayers should not subsidize colleges that do.”

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.

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

The groups, and the lawmakers before them, 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.

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