Public Citizen: Deny federal funding to schools forcing students into arbitration

by Julie A. Murray, guest blogger

Today Public Citizen submitted a citizen petition to the Department of Education asking it to issue a rule that requires colleges to agree, as a condition on receipt of certain federal funding such as Stafford loans and Pell grants, not to include pre-dispute arbitration clauses in enrollment or other agreements with students. Forced arbitration clauses are a tool of choice among for-profit schools, which rely heavily on federal funding and have recently been at the center of numerous government investigations and lawsuits alleging fraud and other wrongdoing.

The petition describes recent cases in which students have been barred from pursuing claims against their schools in court because of arbitration agreements, including cases against the now-liquidated Corinthian Colleges, which collapsed last year under the weight of its own wrongdoing. The petition also highlights some of the fundamentally unfair arbitration clauses that schools have used, such as provisions requiring students to keep all aspects of an arbitration proceeding confidential, limiting an arbitrator’s remedial authority to award punitive or other damages, and sticking students with high costs or fees that would not apply in court. The petition makes the case that, whether or not these clauses are enforceable, they are effective at discouraging students from pursuing their claims. And when students have no access to the civil justice system, particularly to pursue justice in class or consolidated proceedings, the public and regulators are hampered in their ability to uncover wrongdoing that affects federal aid programs.

Take a look at the petition here. An appendix compiling recent arbitration provisions used by schools is here, and Public Citizen’s press release is here.