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Student Loans

Student Loans

The majority of student loan agreements contain forced arbitration provisions, according to a recent survey by the National Consumer Law Center. As in other consumer contracts, arbitration proceedings between student borrowers and lenders are often secretive, one-sided (in favor of the lender) and involve an insufficient exchange of relevant documents and other evidence. This puts student borrowers at a strong disadvantage. Lenders will often insert forced arbitration clauses in private student loan agreements to bar borrowers from challenging the loan’s terms in court. While student borrowers are deprived of adequate remedies when their lenders violate the loan agreements, these clauses allow predatory lenders to escape responsibility for their abusive lending practices or other violations of the law.

For example, student loan lender Key Bank was accused of including forced arbitration provisions in its promissory notes – which allowed it to avoid answering claims that it ignored federal regulations requiring forgiveness of student debt when schools close unexpectedly. The arbitration provision in a Key Bank loan required the borrower to waive his or her right to a jury trial, restricted specific claims that could be made against the bank, limited discovery and prohibited the borrower’s right to pursue attorneys’ fees. Key Bank’s tactics demonstrate that these clauses can be used by sophisticated entities to skirt the law while victimizing student borrowers.

Report: Between a Rock and a Hard Place; Courthouse Doors Shut for Aggrieved Private Student Loan Borrowers, July 2012

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