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Colleges Could Face Uncertain Future if Mandatory Arbitration Clauses are Banned

Monday, March, 28, 2016

The Department of Education is taking a strong stand in favor of banning for profit colleges that receive federal student aid from enacting arbitration clauses for students that bring disputes against the schools. Instead of allowing students to take their cases to court, the clauses force them to use arbitration to settle claims.


The Department’s rulemaking session resulted in its endorsing the weaker of two options that would constrain without ending mandatory arbitration. According to Public Citizen and Fair Arbitration Now, the Department has “ample legal authority” to ban arbitration clauses. The organization admits to being deeply disappointed in the Department’s ruling and failure to end mandatory arbitration clauses because it does not preserve students’ rights to seek civil remedies for wrongdoing.


The organization points out the proposal permits schools to force students to arbitrate individual and class claims. It also fails to clearly cover claims related to marketing, advertising, recruitment, and activities related to enrollment, and extend only to claims related to federal loans or provisions of services related to federal loans.


The concern the organization has is proposed language could be interpreted in a way that excludes claims brought by students over fraud in enrollment and recruitment, something that is common within the school system. The proposal also allows schools to use mandatory arbitration clauses for non-class claims, including those that deter students from bringing claims.


The organization is still hoping improvements will be made and the Department of Education will take a stronger stance against the mandatory arbitration clauses.