Terms of Surrender

Published on March 2nd, 2016

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Sens.: Schools Forcing Arbitration Shouldn’t Get Federal Funds

A cadre of U.S. senators is calling on the U.S. Department of Education to cut off federal funding to schools that require enrolling students to sign agreements containing arbitration clauses, which strip students of their right to sue the school if they’re wronged.

A recent letter to Under Secretary Ted Mitchell takes aim at for-profit colleges that receive billions of dollars in federal education funding every year and that prohibit students from seeking restitution in a court of law (though these terms are not always in plain sight).

The senators write that non-profit schools generally do not include such barriers to court access — which among other things include class action bans  — in their student enrollment agreements:

For-profit colleges that benefit from taxpayers dollars must also be accountable to their students. 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.

Several current and former for-profit colleges have already faced scrutiny over such claims (See our ad alerts on Penn Foster College and CollegeAmerica).

Some students who have been forced into arbitration have refused to pay their loan debt. After the Consumer Financial Protection Bureau accused Corinthian Colleges of deceptively advertising job placement rates to lure students into taking out private loans, a group of former students urged federal education officials to cancel their remaining loan debt. Corinthian Colleges had been the recipient of $1 billion in annual financial aid from the U.S. Department of Education. As of last year, the government had forgiven nearly $500 million of the loan debt from borrowers who attended the now-defunct for-profit institution.

In their letter, the senators argue that the deception surrounding Corinthian Colleges “may have been revealed much earlier if students had been allowed to file suit in a timely manner and adjudicate it in an open court.” Instead, arbitration happened behind closed doors.

Several of the undersigned senators support legislation introduced April 2015 that would forbid schools receiving federal education funding from requiring a student to agree to any restriction on their ability to pursue a claim in court.

Find more of our coverage on for-profit schools here.

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