Students Ripped Off By For-Profit Colleges Discover They Can't Sue

Unlike traditional universities, many for-profit colleges insert language into enrollment documents that prevents students from taking disputes to court.

Jacob was promised a lot by UEI College, a for-profit technical school in California. They told him he’d get hands-on training, a qualified faculty, state-of-the art technology, and preparation for the certification exam he’d need to get a job as a computer technician — his chance, Jacob thought, to get out of a menial warehouse job and into a real career.

Instead, Jacob said, he found a classroom with donated computers so old that some didn’t turn on and others lacked even power cords. The textbooks were outdated, written for an old version of the exam. The instructor, by his own admission, had barely any experience. After Jacob graduated, he kept on working in the warehouse, woefully unprepared for the exam he needed to get a job. Little had changed, except now he was $16,000 in debt.

“I invested my time, my money, and all of my efforts into this class,” said Jacob, who asked to be identified only by his first name because of employment concerns. “I learned nothing.”

When Jacob and other disillusioned classmates tried to band together to sue UEI, hoping to recover the cost of their tuition, they discovered something else: Among their enrollment paperwork was an agreement that signed away their right to a trial with a judge or jury. 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. (UEI did not respond to multiple requests for comment.)

Consumer advocates and many lawmakers say mandatory arbitration agreements are deeply biased against individuals like Jacob, forcing consumers into a process that is skewed heavily in favor of corporations. The agreements have popped up everywhere in recent years — you can find them in your phone contract, your credit card agreement, and even, as of this month, in Seamless’s latest terms of use.

In higher education, unlike almost any other industry, there is a clear, sharp line between who is forced into arbitration and who is not. Students attending nonprofit schools are almost never asked to sign such agreements, but they are ubiquitous among those who attend for-profit colleges. Those students are more likely to be minorities, from low-income families, and first-generation college students.

But while the rise of arbitration clauses seems unstoppable in many industries, for-profit colleges are one industry where they can be easily tamed. Colleges are highly dependent on the federal student loan system, and for-profits get as much as 90% of their revenue from the government. If the Education Department required recipients of student loan dollars to abandon arbitration clauses, few schools could afford to keep the clauses and forgo federal money.

After pressure from activists, the Education Department adopted a proposal earlier this month that would curtail, but not altogether end, forced arbitration. Critics, however, say the proposal doesn't go far enough.

The consequences of arbitration agreements are starkly visible in the world of education, consumer advocates say: By barring class-action lawsuits and limiting attorneys’ rights to find internal documents, the agreements allow for-profit colleges to mask problems that come to light only years later, when state attorneys general and federal agencies step in to investigate.

“Complaints by students can be an important early warning sign that something’s wrong,” said Walter Ochinko, the policy director at Veterans for Education Success, a group that supports veterans in disputes with for-profit colleges. “Arbitration is suppressing evidence that there’s a problem.”

If students at Corinthian Colleges, the logic goes, had been able to sue the school in the early and mid-2000s for false promises and misrepresentations, Corinthian would have been forced to pay out steep financial penalties and might have been deterred from some of its worst practices. With the ability to requisition internal Corinthian documents, lawyers might have exposed the company's propensity for lying about job placement claims much earlier.

As it was, by the time the federal government and state attorneys general had caught on to Corinthian’s malfeasance, the company was already all but bankrupt, and taxpayers, not the company, will pay the price as potentially billions in student loans are written off.

Dominic Valerian, a consumer lawyer, brought two cases against Corinthian in front of an arbitrator 2013. His clients, Valerian said, had been grossly underprepared for jobs as vocational nurses, and given little practical training. But the arbitrator ruled that the school’s minimal education didn’t matter; since the students had gotten jobs anyway, there was no damage done. In the wake of Corinthian’s collapse, those students’ loans have now been forgiven, paid off by taxpayers.

Most lawyers, Jacob found, were unwilling to even take the case against UEI, another common way that advocates say arbitration works against average consumers. Because of the prohibition against class-action suits, there is almost no chance of a big payout for lawyers, who are also hesitant to take on what they see as a deck that is stacked against them: a potentially unfriendly arbitrator combined with an inability to depose witnesses or use the discovery process to obtain evidence.

“To prove fraud, and to prove misrepresentations, and to prove the school’s knowledge of misrepresentations, you’ve got to get internal emails, find out their marketing strategy. When you’re in court you can get all of that — the scope of discovery is very broad,” Valerian said. “In arbitration, it’s very narrow. They’re doing things as quickly as possible. You might get a student’s transcripts.”

Eventually, Jacob and a classmate both hired the same lawyer, Harry Shulman, and used the same evidence to present their case — they recounted identical experiences, showed the same documents, questioned the same witnesses. The only difference was the arbitrators, who were given sole discretion in deciding the case: One, Shulman said, was a seasoned former judge, but the other, the arbitrator who oversaw Jacob’s case, was a lifelong corporate defense attorney. The former judge decided in favor of Jacob’s classmate. But with his case in front of the defense attorney, Jacob lost.

Shulman said the UEI cases illustrate one of the central problems with arbitration: The outcome hinges almost entirely on the arbitrator, a person who many advocates say is inherently biased in favor of corporations.

“How does an arbitration lawyer get clients?” said Robert Muth, who runs a legal clinic for veterans at the University of San Diego School of Law. “They get chosen by For-Profit U, and what if they start ruling against For-Profit U? They lose their job. It’s a huge structural problem — their livelihood depends on them continuing to rule in favor of a specific company. It’s a stacked deck.”

Shulman got a series of lucky breaks in the case against UEI, he said. He managed to obtain an internal email in which Jacob’s instructor admitted to serving his students poorly; there were specific and concrete examples of UEI’s misrepresentations, like the outdated books.

But in the case he actually won, “By far the luckiest break I got was the appointment of that judge,” Shulman said. “He’s 80 years old. He just wanted to make the right decision. That almost never happens.”

Jacob has grown deeply disillusioned with the legal system that he said worked against him and other students at UEI. His mother, he said, “had a spirit of standing up when things were wrong. I used to be very go-with-the flow, but after she passed away, I decided I would stand up for myself.”

He did everything he could to fight the injustice he saw at UEI, he said, and feels cheated — not just out of his tuition, or a chance at a trial, but on behalf of other UEI students. “They’re not going to change,” Jacob said. “They’re not going to improve. They’re just going to keep doing the bare minimum.”

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