For-profit schools have faced a steady stream of legal challenges in recent years. The now-bankrupt Corinthian Colleges was found guilty of predatory lending and falsifying job placement statistics. ITT Tech and DeVry Education Group Inc., among other institutions, have been sued for predatory lending by the Consumer Financial Protection Bureau (CFPB), for fraud by the Securities and Exchange Commission, and for misleading students about employment prospects by the Federal Trade Commission. Despite evidence of widespread abuse, however, virtually no lawsuits have been brought by the victimized students themselves. The reason for this silence? Many for-profit schools force students to give up their right to sue the moment they enroll.
The practice is called “forced arbitration.” Through language buried in the fine print of take-it-or-leave enrollment contracts, students are systematically stripped of their constitutional right to a day in court. Most forced arbitration clauses also block students from joining together in a class action; in other words, wronged students must take on large educational institutions alone, even if hundreds or thousands of others have been damaged by the same misconduct. It’s a very powerful way for these institutions to dodge accountability for defrauding students and their families, and then go right on using federal dollars to commit more fraud.
Forced arbitration clauses, while increasingly common across a wide range of consumer agreements, are especially prevalent among for-profit colleges. Of the 27 for-profit college enrollment agreements examined in a 2012 investigation by the Senate Committee on Health, Education, Labor, and Pensions, 21 contained such clauses.
In February, a group of nine U.S. senators co-signed a letter urging the Department of Education to ban any schools with forced arbitration clauses from receiving federal student loan money. Last week, 47 organizations including AFR sent a letter to the Department, making the same demand.
Education is supposed to be a path to a better life. When schools trick and impoverish students instead of providing them with the tools to seize important life opportunities, students must have mechanisms to hold schools accountable. No institution that receives federal loan money should be able to give itself the power to violate students’ rights and rob them of the ability to effectively seek justice for wrongs done.
Goldstein is a senior policy analyst at Americans for Financial Reform.