Screwed Over By A For-Profit College? You Probably Signed Away Your Right To Sue

When Corinthian Colleges Inc. collapsed, leaving thousands of students in the lurch with student loan debt and credits that they didn’t know would be usable at other schools, they were generally unable to sue the failed for-profit educator because the students had unwittingly signed away their right to a jury trial or class action. CCI wasn’t the only for-profit operator with this anti-consumer practice, and a new report tries to get a grasp on the scope of the problem.

The study [PDF] from the Century Foundation shows all ten of the largest for-profit school chains — representing more than 600,000 students and nearly $8 billion a year in federal student aid — use at least one overly restrictive clause in their enrollment contracts (click chart at left to enlarge).

These include the all-too-typical forced arbitration clauses, which strip students of their right to take the school to court. Instead, legal disputes must be resolved through a confusing process involving a third-party arbitrator whose decision is final, even in cases where the arbitrator makes an obvious error that should have resulted in a different outcome.

Arbitration clauses are generally bolstered with “go-it-alone” clauses, or bans on class actions. This means that even when multiple students have identical legal disputes with the school, they must each arbitrate their issue separately. Because of the financial burden and the limited reward, these class action bans are an effective way to rob wronged students of their legal rights.

The report found some schools are also using “gag clauses” that prohibit students or former students from telling other people about the complaint-resolution process, or about the specifics of any final ruling.

“These types of agreements have long been common in settlements of disputes, but they are now appearing in contracts and other documents that colleges require students to sign as a condition of enrollment, before a dispute even arises,” reads the report.

Finally, a number of schools are not only encouraging students to first go through an internal, institutional dispute resolution process before entering arbitration, they are actually requiring it. Thus, not only are the students forced into arbitration, but they must first go through an entirely separate process first before they can even get to arbitration.

The study looked at a wide variety of schools under three general categories — for-profits, non-profit private schools, public universities — and found a huge disparity between the use of these clauses among the three types:

Almost all (98%) of for-profit schools use forced arbitration clauses, while very few (7%) of non-profit private schools used them, and they are not used by a single public school looked at by the researchers.

For go-it-alone class-action bans, the stats for the non-profit and public schools remains the same, though the percentage of for-profits using these clauses decreases to 63%. Gag clauses were found in around 10% of for-profit schools, but were not present in any of the non-profit or publics.

Regarding mandatory internal review clauses, the report acknowledges that all schools have some sort of internal dispute resolution processes, but only a few — all for-profits — have contract language that actually requires students to run that bureaucratic gauntlet.

Given that for-profit colleges represent a disproportionately large chunk of federal student aid money, both lawmakers and consumer advocates have argued that for-profit schools with forced arbitration clauses — which appears to be nearly all of them — should not be able to receive federal aid until they remove these clauses and give students the same legal rights enjoyed on other college campuses.

“These clauses don’t benefit the public or students who dream of an education,” Julie Murray, an attorney for Public Citizen, recently said regarding arbitration provisions in education contracts. “They benefit the bottom lines of education companies.”

A group of U.S. senators — including Dick Durbin (IL), Sherrod Brown (OH), Richard Blumenthal (CT), Barbara Boxer (CA), Al Franken (MN), Ed Markey (MA), Jeff Merkley (OR), Chris Murphy (CT) and Sheldon Whitehouse (RI) — recently wrote that forced arbitration “has prevented victimized students from holding for-profit education companies accountable in court for their misconduct and has prompted students instead to seek relief from the Department of Education and the taxpayers.”