Private student loan agreements and for-profit college and trade school enrollment contracts frequently contain forced arbitration provisions. (Federal student loan agreements do not.) In 2015, the CFPB reviewed contracts from six of the largest private student lenders along with a contract used by affiliates of Credit Union Student Choice, and found that six of the seven lenders included forced arbitration provisions. For-profit colleges also widely use forced arbitration clauses in their enrollment contracts.
One important rule, the Education Department’s Borrower Defense rule published on November 1, 2016, if implemented, will prevent colleges that take federal aid from blocking access to courts when students are defrauded. The rule prohibits these schools from forcing students to enter into pre-dispute arbitration clauses. However, the current Administration recently announced a re-opening of the rule, further delaying and likely undoing critical protections for students. Comments on revisions to the rule are due July 12.
The CFPB’s forced arbitration rule would prohibit student loan contracts from containing forced arbitration clauses with class action bans. Two bills, the Arbitration Fairness Act and the Court Legal Access and Student Support (CLASS) Act, would restore access to the courts for students defrauded by for-profit schools.
Forced arbitration provisions and class action bans insulate student lenders and for-profit colleges from liability for their misconduct. This is cause for alarm at a time when millions of student borrowers across the country are struggling to manage their loans and government enforcement agencies have alleged that private student loan companies like Navient (formerly Sallie Mae) engaged in predatory lending schemes and widespread illegal cheating of borrowers.
A growing number of students, including military servicemembers, have also been defrauded by for-profit colleges such as ITT, DeVry and Corinthian Colleges, which have made deceptive claims about job placement rates, abruptly closed, or left students with a pile of debt for a worthless degree.
“Reset of Rules Aimed at For-Profits Begins,” Inside Higher Ed, June 2017
“Student Victims Seek to Become Creditors in ITT Bankruptcy,” New York Times, January, 2017
Report: How College Enrollment Contracts Limit Students’ Rights, April 2016
“Students Ripped Off By For-Profit Colleges Discover They Can’t Sue,” Buzzfeed News, March 2016