The class-action lawsuit brought by former students of the now-defunct Trump University has loomed large in the presidential campaign since a federal judge ordered the release of documents last month showing that the for-profit school used high-pressure sales tactics and encouraged applicants to pay tens of thousands of dollars in tuition with credit cards. At least these former students could take their complaints to court, an option that students at many other for-profit schools don’t have because they have been asked to sign away their rights.
Class actions are an essential check on businesses. The information about the Trump University programs might not have come to light had it done what for-profit schools typically do: require students to sign contracts that bar them from joining with others to go to court and force those with grievances into an arbitration system that inevitably favors the schools.
By shielding schools from liability when they defraud or deceive students, these mandatory arbitration clauses are an invitation to shady business practices. The U.S. Department of Education, which is expected to issue rules on this matter soon, should ban the clauses outright.
The case for doing so is laid out in a study of enrollment contracts at 271 schools published this spring by the Century Foundation, a nonpartisan research group. The study found that arbitration clauses and other measures that limited the legal rights of students were rarely used in traditional nonprofit colleges or even for-profit schools that do not receive federal funds. But they are frequently placed in enrollment contracts by for-profit schools that participate in the federal financial aid program.
Forced arbitration isn’t the only restriction, however. Go-it-alone clauses forbid students from joining with other people in group or class actions. Gag clauses bar students or former students from telling others about the complaint resolution process or the specifics of any final ruling. And internal process requirements prohibit students from taking their complaints public without first going through the school’s own process. In some cases, schools try to bar people from taking complaints elsewhere — even if the internal process yields no relief.
The language may vary, but the restrictions have a specific purpose: to smother scandal and protect schools from financial liability when they are accused of using fraudulent or deceptive practices. To bring greater transparency to the for-profit sector, the Education Department needs to ban these restrictions in schools that receive federal aid.
FROM AN EDITORIAL IN THE NEW YORK TIMES