July 20, 2020

For-Profit Colleges Race To Block Students From Suing Them

Donald Trump and his education secretary Betsy DeVos, over the objections of bipartisan majorities in both houses of Congress, recently rewrote a key federal regulation so that going forward it will be almost impossible for former students who were deceived and ripped off by their colleges to have their federal loans cancelled, even though a federal law provides that right. 

People have paid less attention to a second critical feature of the revised Trump-DeVos borrower defense rule: A provision that once again allows colleges to use fine-print “mandatory arbitration” clauses to deny scammed students their right to seek relief in a court of law or to join together in a multi-student lawsuit or class action against a school.

Combined, unless they are overturned by a court or the next White House, the two Trump-DeVos provisions will give scammed students little hope of getting relief from mountains of debt incurred for substandard educations sold by false pretenses. And the predatory colleges doing the scamming will be able to keep getting taxpayer dollars regardless of bad behavior. 

When the Department of Education, at the end of the Obama administration, moved to prohibit colleges that take taxpayer money from forcing students to sign these ripoff clauses as a condition of enrolling, the record showed that most for-profit colleges were forcing arbitration clauses, and basically no other colleges were.

Predatory schools love forced arbitration — a secret proceeding with a paid corporate rent-a-judge — and class action bans, because those things make it harder for a ripped off student to obtain a lawyer, afford a legal process, get justice before an impartial decision-maker, and create precedents that could help future students.

With corporate lobbyists from numerous industries pressing Congress, and a sharp pro-business, anti-consumer majority on the Supreme Court, federal law now does favor arbitration clauses, no matter how much they hurt everyone from cell phone customers to nursing home residents.

But advocates for students were eventually able to convince the Obama administration — and it did take some convincing, believe me — that the college situation was different, that it was appropriate to demand that colleges taking millions and even billions in taxpayer dollars treat their students fairly and be held accountable for abuses. Many for-profit colleges get close to 90 percent, or more, of their revenue from federal student grants and loans.

The for-profit colleges fought hard against this provision along with the rest of the Obama rule, and then pressed DeVos to reverse it. Of course, DeVos, whose top higher education aides previously worked at predatory for-profit colleges, obliged.

Now, just days after the DeVos borrower defense rule took effect, and as many for-profit schools are revving up deceptive recruiting of people displaced by the coronavirus pandemic, CECU, the Washington DC lobbying group of for-profit colleges, has helpfully provided its members with guidance about how to again block scammed students from suing in court for their injuries. 

Republic Report obtained a copy of an email from CECU to its members last week. It notes that the new DeVos rules allow schools to ban student lawsuits and class action arbitrations “so long as the institutions provide plain-language disclosures to students” in decent size fonts on their websites, and in their catalogues, and explain the provisions to students when they enroll, letting them know who they can contact with any questions.

CECU then offers what it calls “user-friendly template language” for schools to use. You can read it and decide how friendly and helpful to students it is. 

Draft language to consider in constructing an institution’s written public disclosure under 34 CFR 668.41. Institutions should modify the template as needed and consult with their legal counsel, if necessary.     

Pre-Dispute Arbitration and Class Action Waiver Disclosure

Name of Institution seeks to resolve disputes or claims between any student and the school in a manner that addresses an individual student’s complaint in an efficient, cost-effective, and quicker manner than traditional litigation. A student who enrolls at Name of Institution agrees, as a condition of his or her enrollment, to resolve any dispute through mandatory arbitration that shall not be adjudicated as a class action or a consolidated class arbitration proceeding. However, the school cannot require a student loan borrower to participate in arbitration or any internal dispute resolution process offered by the institution prior to filing a borrower defense to repayment application with the U.S. Department of Education pursuant to 34 CFR 685.206(e); the school cannot, in any way, require students to limit, relinquish, or waive their ability to pursue filing a borrower defense claim, pursuant to 34 CFR 685.206(e) at any time; and any arbitration, required by a pre-dispute arbitration agreement, tolls the limitations period for filing a borrower defense to repayment application pursuant to 34 CFR 685.206(e)(6)(ii). 

It sounds like a bunch of legal blather to me, so I checked with some experts. They work at the non-profit groups Public Citizen (on whose board I serve) and Project on Predatory Student Lending (for which I was once a consultant); the two groups have jointly filed one of two pending lawsuits to strike down the DeVos borrower defense rule.  

Adam Pulver of Public Citizen Litigation Group wrote me, “The complicated legalese CECU is promoting as a ‘user-friendly’ template disclosure is further evidence that no ‘disclosure’ can make for-profit schools’ use of mandatory arbitration clauses a matter of informed consumer choice.”

Toby Merrill of the Project on Predatory Student Lending, which is based at Harvard Law School, said of the CECU template, “I find the language fairly incomprehensible, not just to a lay person or a student but to me.”

As to CECU’s sprint to get this text into the hot hands of its member colleges, Pulver said,  “Schools’ glee in rushing to include the previously prohibited forced arbitration clauses in agreements reflects what those who care about students have been saying for years: forced arbitration clauses are a means of avoiding accountability, which provide only upside for schools, and none for students and taxpayers.”

Merrill said, “CECU has fought long and hard for the ability to eliminate borrowers’ rights to bring their claims to court, and therefore I’m not surprised that predatory schools and their parent organization are rushing to put this limitation back in place as soon as possible.”

The man standing behind this dismal disclosure draft, CECU’s CEO, former congressman (R-WI) Steve Gunderson, has announced he will retire later this year after eight years running the group. Gunderson’s efforts, during the Obama years, to aggressively oppose any meaningful college accountability measures — rules to separate good schools from bad ones — were a spectacular failure, and his assertions denying his member schools’ roles in abusing students have been grotesque.

But Gunderson got lucky when the head of Trump University surprisingly was elected president of the United States, and he watched as his special ties to Trump crony Newt Gingrich, Betsy DeVos’s contempt for students, and the revolving door corruption of her top aides, led to the trashing of all those Obama-era reforms.

Gunderson probably still reads political polls and fears these DeVos anti-reforms, such as on arbitration, are short-lived, so he’ll ride into the sunset. He will leave a legacy of helping to send billions more of your taxpayer dollars to bad-acting for-profit colleges that have diverted most of the money to executive salaries, investor payouts, recruiting, and advertising, instead of quality instruction, while deceiving veterans, single moms, and others into lives of overwhelming debt.

I can’t say I’ll miss Steve Gunderson, but given his organization and his industry, he could easily be replaced with someone even worse.

UPDATE: 7-20-20 9:30 pm: I neglected to mention that earlier this year Virginia enacted a first-of-its-kind law prohibiting colleges from requiring mandatory arbitration clauses or class action bans as a condition of enrollment.