How College Enrollment Contracts Limit Students’ Rights

By Tariq Habash & Bob Shireman

This report first appeared on tcf.org.

When students go to college, they are confronted with a flurry of paperwork — applications, financial aid forms, housing forms, and so on — all of which seems pretty routine. Increasingly, however, some schools have been including an additional form hidden in that stack of innocuous documents that is quite unlike the others: an enrollment contract.

Not generally found in traditional higher education, these enrollment contracts — formal, legalistic agreements — include language that spells out the options each signee has in a range of situations, ones that probably appear purely hypothetical to most enrollees. One can forgive students — intent on a journey that they hope will change their lives in wonderful ways — for signing everything put in front of them, as quickly as they would click “agree” to the terms and conditions of an online app. The language in these enrollment contracts, however, has a very specific purpose: protecting the financial interests of the school by limiting a student’s legal rights, should something go wrong.

This report examines the use of enrollment contracts by various colleges — specifically, those provisions that restrict the ways in which students and former students can seek any redress of grievances against these institutions, should they feel the need. It presents the results of a survey of postsecondary institutions, illustrating the basic types of restrictive provisions most frequently employed, the specific language typically used, the various agreements in which these restrictive provisions appear, and the sorts of schools that often have such contractual agreements. The report concludes with recommendations to address this insidious practice, followed by a table listing the data for each institution studied.

Students Feeling Cheated, Trapped

Stories stemming from colleges’ use of enrollment contracts have appeared in the press with increasing frequency. These accounts follow a pretty familiar script, in which an idealistic student in the role of David confronts a corporate Goliath of a school, but in most cases, Goliath wins.

Jacob, for example, invested his time, money, and energy in a college he was led to believe would lead him to a career in the technology industry. Instead, according to investigative journalist Molly Hensley-Clancy, he ended up without the skills or the job — but with significant debt. When he and other disillusioned classmates tried to band together to hold the school — a for-profit company called UEI College in Long Beach, California — accountable, they discovered that among the enrollment paperwork they signed was a provision prohibiting them from going to court. Instead:

The mandatory arbitration agreement meant they were legally compelled to take their complaints to an arbitrator — a lawyer who was chosen and paid by UEI. There would be no chance for depositions before the hearing, no discovery process that might allow their lawyers to uncover wrongdoing, and essentially no way to appeal the arbitrator’s ruling.1

Under such a grievance process, there can be little doubt which way the arbitrator would rule.

In another case, Debbie Brenner and other former students at Lamson College, in Peoria, Illinois, thought that they had a slam-dunk case that the school had swindled them. They went to court, but the judge threw the case out because the enrollment contract the students signed when they initially enrolled included a “forced arbitration” clause, according to the New York Times. In arbitration, the former students found themselves making their case before a corporate lawyer who seemed intent not only on defending the school, but also for-profit education in general. In a ruling that is difficult to appeal — because of the way forced arbitration clauses are usually written — the arbitrator ruled against the former students and, to top it off, socked them with a legal bill of more than $350,000 because of the “hardship” the students had supposedly inflicted on the company that owned the school.2

While the stories of students like Jacob, Debbie, and others are increasingly making their way into the public eye, little is known about the enrollment contracts and restrictive clauses themselves. Who uses them? What do they say?

A Survey of Enrollment Contracts with Restrictive Clauses

To determine which colleges use enrollment contracts, and the types of restrictive clauses students may be subject to, we sought to collect information about the contracts, if any, that students sign when they enroll at various types of postsecondary institutions throughout the country. We used a variety of methods to collect enrollment contracts from 271 schools across the higher education spectrum — public, private nonprofit, and for-profit schools — and studied them for language that limited students’ rights, should they have any complaints about the value or practices of the educational experience for which they were paying. (See the Appendix on Methodology at the end of this report.)

What we found was that while there were many different ways these schools snuck restrictive clauses into their enrollment paperwork, the types of restrictions imposed upon incoming students fell into four basic categories:

• Forced arbitration clauses. These provisions prohibit students or former students from going to court to seek resolution of any complaints, such as a student seeking a refund for an inadequate education. Instead, the college requires students to take any complaints to an arbitrator in a private, binding process.
• Go-it-alone clauses. When these provisions are included in enrollment contracts, students and former students who have complaints are not allowed to join with peers who may have similar complaints against the school (such as through a group or class action). Instead, the contractual provision requires each student to seek resolution alone.
• Gag clauses. These provisions prohibit students or former students from telling other people about the complaint-resolution process, or about the specifics of any final ruling. These types of agreements have long been common in settlements of disputes, but they are now appearing in contracts and other documents that colleges require students to sign as a condition of enrollment, before a dispute even arises.
• Internal process requirements. While all colleges encourage students to make use of internal grievance procedures, these provisions prohibit students from taking their complaints to other forums for resolution without first going through the school’s internal process.

We also found that, while these types of restrictions were frequently imposed by for-profit colleges participating in the federal financial aid program, they were used only rarely at traditional nonprofit colleges or at for-profit colleges not using federal funds, and almost never at public institutions. Table 1 shows the ten largest schools from our sample using at least one restrictive clause — all are for-profit colleges, receiving nearly $8 billion from the U.S. Department of Education in 2013–14.

…continue reading the remainder of the story on The Century Foundation’s website.

Tariq Habash is a policy associate at The Century Foundation where he researches education policy.

Bob Shireman is a senior fellow at The Century Foundation where he researches and writes on higher education.