We recently blogged about Public Citizen, Inc.’s petition to the Department of Education requesting the Department to adopt a rule requiring schools to agree, as a condition of receiving Title IV assistance under the Higher Education Act, not to include pre-dispute arbitration agreements in enrollment or other agreements with students.  The ED now appears to be giving serious consideration to such a ban.

The ED is currently engaged in the negotiated rulemaking process to clarify how Direct Loan borrowers who believe they have been defrauded by their schools can seek relief.  Last week, the ED released its revised proposed draft regulations for the third and final negotiated rulemaking committee meeting.  The revised draft includes two options for amending the Direct Loan Program Participation Agreement (PPA) requirements with which a school must comply as a condition of receiving Title IV assistance.

One option would require a PPA to provide that a school must notify the ED “of the initial filing of any claim, whether in arbitration or in a court, asserted by a student, whether as an individual or as a member of a class, or by a governmental agency, based on any act or omission of the school attended by the student that relates to the making of a Federal loan or the provision of educational services financed by that loan.”  A school could “not compel, through the use of pre-dispute mandatory arbitration agreements or any other means, arbitration of any such claims asserted by students in cases filed in a court on behalf of a class unless and until class certification is denied or the class claims are dismissed.”

However, it appears a school could compel arbitration of individual claims provided it follows certain requirements.  Such requirements include ensuring that (1) the ED “receives a copy of each filing by any party and each order, ruling, decision or other written document produced by the arbitrator, within 10 days of the filing, in the case of a filing by the school, or the school’s receipt of the filing, order, ruling, decision, or other written document, in any other case,” (2) the arbitration proceedings are “open to the public and recorded,” and (3) “no party is prohibited from speaking, writing, or otherwise communicating about the claims at issue or any other matter related to the arbitration” except that the parties can agree not to disclose the terms of a settlement.  In addition, if the school can bring any claim outside of arbitration, the borrower would have an equivalent right to do so.

The second option appears to be a total ban on the use of pre-dispute arbitration agreements.  It would require a PPA to provide that “for any claim related to the making of a student loan or the provision of educational services,” the claim “may only be arbitrated with the student’s consent after the claim arises” and students will not be prohibited “from asserting any such claim in cases filed in a court on behalf of a class.”  A school would be required to notify the ED “upon the submission of and submit copies of any initial filings and decisions for such claim whether filed in court or in arbitration.”