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For-profit schools may contract against consumer fraud claims

There has been a steady body of class action litigation in California and other states against certain types of colleges and private schools that offer up arguably inferior programs and at the same time take in millions or billions in federal financial aid. A few nationwide educational chains may fall into this category. The problem recently for students trying to be compensated for losses incurred through the educational form of consumer fraud is that they find that they have signed agreements restricting them to a form of arbitration as their sole remedy.

Studies recently issued by the Century Foundation and Public Citizen reveal that for-profit schools often use deceptive enrollment contracts with obscure arbitration clauses inserted in the fine print. The clauses are not negotiated with the students, and the form contracts are on a take-it-or-leave-it basis. Such provisions may be attacked in court as being unconscionable and therefore unenforceable.

The problem with the arbitration remedy in several of these cases is that the arbitration is virtually controlled by the school and the outcomes heavily favor the education institution. This has a disproportionately adverse impact on minority and poor students. The provisions tend to forbid class action remedies by students and even prohibit the filing of a private lawsuit in a state court system. Experienced attorneys may be successful in arguing unconscionability with respect to the pro forma contracts signed by the students.

In California, state authorities filed a lawsuit against Corinthian Colleges and its subsidiaries for false advertising, securities fraud and intentional misrepresentation. Where the contracts are oppressively against any exercise of normal rights by the students, they may sometimes have to rely on state or federal officials to vindicate their claims. In egregious cases, private class action attorneys who are experienced in consumer fraud matters may be able to offer solutions and hope toward obtaining meaningful recoveries for the students.

Source:, "For-Profit Colleges Have a New Way to Hoodwink Students", Michelle Chen, May 11, 2016

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