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Department of Education Urged to Stop Using Arbitration Agreements in Title IV Assistance

Thursday, March, 10, 2016


Public Citizen, Inc. is urging the Department of Education adopt a rule that requires schools to agree not to include pre-dispute arbitration agreements in enrollment and any other agreements entered into by students. The rule would apply to schools receiving Title IV assistance under the Higher Education Act.

 

The request was included in a petition from Public Citizen, and they argue the adoption of the rule would be consistent with the Department’s authority to establish standards for administrative capability. If the rule were to pass, it would require a school’s Title IV contract contain written commitment with such standards, something Public Citizen believes is completely within the authority of the Department.

 

Public Citizen also does not believe a rule is consistent with the Federal Arbitration Act because it does not make pre-existing arbitration agreements unenforceable, nor does it bar enforcement of future agreements. If a school were to violate the rule, the Department could take administrative action against the school, but the agreement would still be enforceable.

 

Public Citizen states it is in favor of banning arbitration agreements because of the class action waivers included in the agreements. A proposed rule is expected to prohibit the use of class action waivers in consumer arbitration agreements. There is no evidence this will occur and most courts believe there is no basis for a complete ban on arbitration. Many believe the Public Citizen argument overlooks the fact that a school being put at risk for administrative action in response to an arbitration agreement would create a penalty that could impede the unencumbered right of parties to participate in arbitration.