Proposed new rules on higher education debt forgiveness are a “left-wing wish list” that seeks to ban economically efficient arbitration agreements and class action waivers, according to one opponent of the plans.
Those arguing against the soon to be finalized Department of Education rules on debt forgiveness, including limits or bars on mandatory arbitration, believe it will lead to a rash of legal actions, increased costs to colleges, and therefore to students.
Andrew Kloster, until recently a legal fellow with the Heritage Foundation, argued the new rules proposed are an abuse of federal power, as they seek to leverage ownership of loans to regulate in an area beyond its scope.
The deadline for comments on the new rules, designed to make it easier for students to recoup loan payments if they believe a college misled them, and for the government to seek restitution from colleges, was Aug. 1.
The rules proposing limiting the use and scope of mandatory arbitration clauses in contracts student sign with colleges have provoked debate and thousands of comments were submitted from colleges, student organizations and advocacy groups.
"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,” undersecretary Ted Mitchell said in a statement limiting mandatory arbitration.
But there are concerns among some that the rules will lead to a rash of class actions and prove a boon for plaintiff lawyers.
Mandatory arbitration clauses, and class action waivers, are mainly used by for profit colleges. But non profit colleges, particularly smaller institutions, are also concerned about being being unwittingly caught out by tougher rules on “misrepresentation,” opening them up to o a greater chance of lawsuits.
Law professor Paul Caron, in a recent post for the US Chamber’s Institute of Legal Reform, was scathing in his criticism of the rules on misrepresentation.
“Did the school advertise some leading professors who retired or moved to other schools before you graduated? Obviously misleading — sue them,” Caron, a Pepperdine University law professor, wrote. “Did the school mention some of its more famous alumni — perhaps a Hollywood star — while the only job you can get with your drama degree is as a barista at Starbucks? Now you can sue, claiming that the glossy puff piece from the school was misleading.”
The rules are a "left-wing wish list," seeking to prohibit economically efficient bargains such as arbitration agreements and class action waivers, according to Kloster.
"The proposed rules are an abuse of federal power, seeking to leverage federal ownership of student loans to regulate things otherwise beyond the scope of Congress's Article I authority,” Kloster wrote in an email response to the Higher Education Tribune. "While the federal government has near-plenary authority to regulate things it owns, the new rule contravenes the spirit of the authorizing statute and will be reversed by the next administration."
Kloster predicted a Trump administration would reform the Department of Education, particularly its Office of Civil Rights.
The department “often seeks to strong arm schools into compliance with unreasonable mandates, such as the transgender bathroom mandate."
But Mitchell, in his statement in March, said, “Legal aid, veteran, consumer, and student advocacy groups have all shared with us how mandatory arbitration has harmed students across the country.”
Traditional nonprofit colleges rarely include arbitration clauses in contracts with students, but they are popular in the for profit sector, according to a recent study by the progressive Century Foundation.
“These clauses let companies engage in questionable activity, feel more comfortable with aggressive recruiting,” Robert Shireman, a senior fellow at the Century Foundation and co-author of the report, told The Washington Post.