DeVry University and the University of Phoenix will no longer bar students from filing class-action lawsuits or otherwise taking their grievances to the courts, putting an end to mandatory arbitration clauses that consumer advocates say rob students of their rights.
For-profit colleges have come under fire for tucking arbitration clauses into their enrollment contracts to protect their financial interests. Students are typically unaware the restriction exists until problems arise and they try to seek redress. And once they do, the chances of a favorable outcome in arbitration are slim.
Although DeVry Education Group, the parent company of the for-profit college, did not publicize its decision to eliminate the arbitration clause, spokesman Ernest Gibble said the company took action May 13 as a part of an "overall effort to rethink the student experience."
Apollo Education Group, the publicly traded owner of the University of Phoenix, said late last week it would stop including the clause in enrollment agreements at Phoenix and Western International University starting July 1.
"We have worked hard to further improve the student experience at all of our institutions, and it's clear that eliminating mandatory arbitration is the right choice for all of our students," Greg Cappelli, chief executive at Apollo, said in a statement. "This decision joins with a host of efforts already underway to improve student outcomes."
A study from the Century Foundation found that traditional nonprofit colleges rarely employ mandatory arbitration clauses, which have become a standard feature in many contracts drawn up by for-profit institutions receiving federal financial aid dollars. Researchers say arbitration can be a secretive process that lets companies dictate the terms of negotiations. Because arbitrators rely on a company's repeat business, they are more inclined to rule in the company's favor, the report said.
For-profit colleges have argued that they can lower the cost of delivering education by avoiding pricey litigation. They say arbitration is an efficient way to resolve disputes, but federal regulators disagree.
The Consumer Financial Protection Bureau has found that the agreements often lead to poor outcomes for consumers. Arbitrators in the cases the bureau examined rarely ruled in favor of consumers, and even when they did, arbitrators awarded paltry sums. The bureau is crafting rules to prevent financial companies from using arbitration clauses to bar consumers from taking part in class-action suits.
For its part, the Department of Education is considering an all-out ban or limiting the use of mandatory arbitration clauses in enrollment contracts. The issue came up in March during negotiations to revise borrower defense to repayment, the process by which students can have their federal loans discharged.
Advocates petitioned the agency to make it easier for students who feel they've been wronged to hold colleges accountable. They say that making it easier for students to sue schools would lessen the chance of the government having to provide relief, which would save taxpayers from picking up the tab for the misdeeds of private companies.
With negotiators failing to reach an agreement, it is now up to the department to write the rules, which may put an end to arbitration clauses in education contracts once and for all.