The Department of Education announced on Friday a proposal to establish borrower-friendly processes for seeking and obtaining loan relief triggered by unscrupulous conduct by higher education institutions. The Department also proposed options to protect students from the use of mandatory arbitration provisions in enrollment agreements. The proposals were made in connection with an ongoing negotiated rulemaking currently underway.
The Department's press release explains: "Last September, the Department began a negotiated rulemaking process to clarify how Direct Loan borrowers who believe they have been defrauded by their institutions can seek relief and strengthen provisions to hold colleges accountable for their wrongdoing. Current provisions in federal law and regulations called 'defense to repayment' or 'borrower defense' allow borrowers to seek discharge of their Direct Loans if their college's acts give rise to a state law cause of action."
The proposal to restrict use of binding, pre-dispute arbitration provisions in contracts with students builds on a request made to the Department by Public Citizen in a citizen petition submitted two weeks ago. The petition urges the Department to deny Title IV funding – such as direct loans – to schools that require students to submit any future disputes with the schools to a private system of arbitration. These requirements, built in student enrollment contracts, are used by many for-profit schools to block students from suing the schools in court and to avoid accountability for their wrongdoing.