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Education Department May Ban Mandatory Arbitration

March 14, 2016
 

The U.S. Department of Education is considering a proposal that would prohibit colleges from including mandatory arbitration clauses in their enrollment agreements with students, the department announced Friday.

Department officials will include the proposal as part of the ongoing rule-making negotiations that are primarily focused on creating a new debt relief process for defrauded student loan borrowers.

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. He noted that the issue has long been pushed by consumer advocacy groups. “We heard them and we agree.”

The department also announced that it was revising its position on some of the debt relief issues after pressure from congressional Democrats, consumer advocates and student debt activists.

For instance, the department’s latest proposal for debt relief would not impose a time limit on when defrauded borrowers could seek a discharge of their outstanding loan debt. The proposal also outlines a debt relief process for groups of defrauded borrowers that would not 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.

 
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