Easier for Students to Sue U of Phoenix

(Photo: Flickr, Creative Commons)

(Photo: Flickr, Creative Commons)

One of the largest for-profit college chains in the United States has announced that it will stop putting mandatory arbitration clauses in its enrollment agreements.

Apollo Education Group, parent company of the University of Phoenix, already does not make use of the clauses at two of its other institutions, the College for Financial Planning and the Iron Yard.

Greg Cappelli, Chief Executive Officer of Apollo Education Group, commented, "We have worked hard to further improve the student experience at all of our institutions, and it's clear that eliminating mandatory arbitration is the right choice for all of our students." Cappelli continued, "This decision joins with a host of efforts already underway to improve student outcomes, aligns all of our U.S.-based colleges under a standard student practice, and comes with the full support of our prospective new owners."

The clauses, used in many contracts now from credit cards to nursing homes, make it difficult for the consumer to sue the company in the event that they feel they have been wronged. The clause requires all disputes to be settled through arbitration, a closed process. However, consumer advocates argue that this typically rules in favor of the company.

In addition, such clauses are typically placed together with class-action bans, causing any claims filed to be more expensive because plaintiffs would be unable to file them as a group.

A rule was proposed earlier this month by the Consumer Financial Protection Bureau that would put a stop to the use of arbitration clauses in contracts for financial products.

At the same time, Apollo Education Group is currently undergoing a company-wide turnaround. A buyout bid was approved earlier in the month by shareholders, which puts the company one move closer to becoming private. The decision came after a large decrease in enrollment was seen, which in turn caused the stocks to plummet over a period of several months. An ad campaign has also been launched by the University of Phoenix in an effort to put a stop to concerns over the quality of the school.

Meanwhile, consumer advocates are pushing for the Department of Education to ban all colleges that receive federal financial aid funding from being allowed to include mandatory arbitration clauses in enrollment agreements. While they are used regularly at for-profit schools, this is not the case elsewhere. Advocates argue that the clauses cause students to feel they are unable to bring a claim against a school, even when they feel they have been wronged. That could put taxpayer funds at risk, because class-action lawsuits typically notify regulators to violations of the law that could cause schools to be unable to receive federal financial aid funding.

Department officials have also spoken up against the clauses, referring to them as "outrageous" and "gotchas" in a previous news release from earlier in the year. Two proposals were put forth by the effort as part of a negotiation that has taken place over several months in order to determine how and when those who believe they were wronged by their school should be offered access to loan forgiveness.

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