The U.S. Department of Education is considering a proposal to ban colleges from including mandatory arbitration clauses in enrollment agreements with students. Education Department officials plan to include the proposal as part of ongoing rule-making negotiations that are mostly focused on creating a new debt relief process for defrauded student loan borrowers.
The department also is revising its stance on many debt relief issues after pressure from consumer advocates and student debt activists. Last week, several congressional Democrats criticized the Obama administration’s draft proposal for new regulations governing how students can seek debt relief when defrauded by their college. They want a more streamlined process than what the administration is considering.
Consumer and student advocates have been pressing the Obama administration to stop colleges from using mandatory arbitration clauses because they curb students’ legal ability to sue colleges for any wrongdoing. The clauses requiring students to settle any disputes with their college through arbitration are most common at for-profit institutions.
"The department is working to ensure that no college can dodge accountability by burying ‘gotchas' in fine print that blocks students from seeking the redress they’re due," Under Secretary of Education Ted Mitchell said in a statement, noting that the issue has long been pushed by consumer advocacy groups. "We heard them and we agree." The Education Department’s latest proposal for debt relief would not only drop the time limit for when defrauded borrowers can seek a discharge of outstanding loan debts but it also outlines a debt relief process for groups of defrauded borrowers that wouldn't require each borrower to submit an application and individually prove his or her claim.A negotiated rule-making panel will meet for the third time this week to discuss the proposals. The Education Department has said that the debt relief regulations will be finalized by November so that they can take effect by July 2017.
Negotiation over the regulations will continue next week.