Student Arbitration Agreements

By Edward Cramp and Jessica S. High

July 1 is quickly approaching for institutions that require students to sign pre-dispute arbitration agreements.  The new Borrower Defense to Repayment (BDR) regulation goes into effect on July 1. Among other things, it prohibits Title IV institutions from requiring students to sign mandatory pre-dispute arbitration agreements covering BDR claims.

Institutions can continue to use arbitration agreements for non-BDR claims. Institutions should review current arbitration agreements to ensure they comply with the new regulation.  Additionally, institutions must provide notice (with prescribed language) to students who previously signed a pre-dispute arbitration agreement that does not comply with the new regulations. The notice must be provided no later than exit counseling or the date on which the school files its initial response to a demand for arbitration or service of a complaint, whichever is earlier.

Compliant arbitration agreements and notices must be implemented by July 1. Some arbitration administrators, such as the American Arbitration Association, required consumer arbitration agreements to be registered with the agency.  Such administrators may decline to administer an arbitration if the college or business does not comply with the registration requirement. Institutions should review their arbitration administrator’s rules to see if this is required.

Finally, litigation is pending in the case of CCST v. Cardoza, which may impact whether the new BDR regulation goes into effect as scheduled.  Institutions should be on the watch for updates in the event that the court issues a ruling that impacts the implementation of the new rule.

If you have any questions about this blog post, please contact Edward Cramp, Jessica High, any of the attorneys in our Higher Education Group or the attorney in the firm with whom you are regularly in contact.

U.S. Department of Education Updates Third Party Servicer Guidance

On May 16, 2023, the United States Department of Education (the “Department”) updated its Third Party Servicer Guidance issued in GEN-23-03.  The new Dear Colleague Letter (“DCL”) officially delays indefinitely the previously issued guidance.  It also removes the prohibition on contracts between institutions of higher education and foreign owned or operated third party servicers.

This DCL replaces the prior update posted in a blog by Undersecretary Kvaal, in which he commented that the department was effectively delaying the prior DCL.  This formalizes that announcement.

The DCL indicates that institutions will be provided with at least six (6) months advance notice before the effective date of any future formal guidance.  The deadlines for audit and contractual requirements in any new guidance will be delayed until the institution’s first fiscal year beginning after the effective date for the reporting requirements.  We read this to mean that institutions and Third Party Servicers will not be required to retroactively implement the new guidance.

Finally, the Department also clarified that institutions may contract with foreign owned Third Party Servicers.  It rescinded earlier guidance on this issue.  The Department did note, however, that this issue may be subject to rulemaking in the future.

Institutions and potential Third Party Servicers should continue to evaluate how they may be impacted by new regulation or guidance in this area.  It is clear that the Department is intent on increasing its oversight of Third Party Servicers by expanding the scope of services that fall into the Third Party Servicer bucket in the Higher Education Act.  In addition, the Department has identified Third-Party Servicers and Related Issues for rulemaking in the fall of 2023. Concerned parties should continue to monitor developments from the Department as they arise over the next several months.

U.S. Department of Education Releases Draft New Gainful Employment, Financial Responsibility, Administrative Capability, and Ability to Benefit Proposed Rules – 30 Day Public Comment Period

On May 17, 2023, the U.S. Department of Education (Department) released to the public the text of proposed regulations to establish a new iteration of a Gainful Employment (GE) rule, which would terminate access to Federal financial aid for career training programs that leave graduates with unaffordable debt burdens or with earnings that are no higher than workers without any education beyond high school.

The proposed regulations will be published in the Federal Register on May 19, 2023. The public may submit comments on the proposed rule through the website for 30 days. The Department expects to finalize the rules later this year. Under the master calendar requirements of the Higher Education Act, rules finalized by November 1, 2023, will go into effect on July 1, 2024.

The proposed GE rule applies to all Title IV eligible programs offered by proprietary (for-profit) institutions of higher education and less than 2 year (certificate) programs offered by public and private non-profit institutions. Institutions offering such programs should closely analyze the proposed rule and submit public comments within the 30 day open comment period. We will be publishing a more detailed analysis of key components of the rule in the near future.

The Department also included proposed changes to three other regulatory areas:

  • Financial Responsibility, which includes proposals to make it easier for the Department to secure upfront financial protection when colleges start to exhibit signs of financial struggle, such as when an institution incurs significant debts or liabilities from a lawsuit or is at risk of losing access to Federal financial aid programs.
  • Administrative Capability, which includes proposals to increase requirements for colleges to provide adequate career services and clearer financial aid information, and to limit the employment of individuals with a past history of risky behavior or misconduct related to the Federal financial aid programs.
  • Certification Procedures, which includes proposals to make it easier for the Department to incorporate stronger safeguards into its written agreements with institutions for participating in Federal financial aid programs. These proposals also protect students by allowing the Department to require teach-out plans or agreements when a college is at risk of closure.

Finally, the regulations contain consensus language agreed to during negotiated rulemaking in Spring 2022 that will revise Ability to Benefit rules. These are provisions related to how students without a high school diploma may access Federal aid. In particular, the regulations would provide a more streamlined process for States to approve postsecondary opportunities for these students.

View an unofficial copy of proposed regulations here. A fact sheet on the GE and transparency parts of the rules can be found here and a fact sheet on the other provisions in the regulatory package are here. The Department is also releasing a version of the data that was used to model the effects of the proposed gainful employment and financial transparency rules in the Regulatory Impact Analysis, which can be found on this page.

Department of Education Releases Proposed Rules on Accountability for Certificate and For-Profit Programs and Transparency into Unaffordable Student Debt | U.S. Department of Education

New Title IX NPRM

On April 6, 2023, the U.S. Deptartment of Education released a new Notice of Proposed Rulemaking (“NPRM”) on Title IX.  This NPRM focuses on the application of Title IX to gender in student sports.

The current Title IX rule (last amended in 2020 under the Trump Administration) does not expressly address the criteria a school should use to determine eligibility to participate on a male or female athletic team. This NPRM proposes to change that and “would establish that policies violate Title IX when they categorically ban transgender students from participating on sports teams consistent with their gender identity.” However, in the NPRM, the Department states that it recognizes that in some instances, “particularly in competitive high school and college athletic environments, some schools may adopt policies that limit transgender students’ participation.” Through the proposed rule, the Department is attempting to provide schools with a “framework for developing eligibility criteria to protect students from being denied equal athletic opportunity, while giving schools the flexibility to develop their own participation policies.” 

Under the proposed framework, a one-size-fits-all policy banning transgender students from participating in athletics consistent with their gender identity is prohibited. The proposed regulation would be in the Title IX regulations at section 106.41(b)(2): 

“If a recipient adopts or applies sex-related criteria that would limit or deny a student’s eligibility to participate on a male or female team consistent with their gender identity, such criteria must, for each sport, level of competition, and grade or education level: (i) be substantially related to the achievement of an important educational objective, and (ii) minimize harms to students whose opportunity to participate on a male or female team consistent with their gender identity would be limited or denied.”

This NPRM will be open for public comment for 30 days from publication in the Federal Register and we expect comments to be strongly divided. Once the comment period closes, the Department will review the comments received and will either proceed with the rule as proposed, issue a new modified proposal or withdraw the proposal. 

Important April 11, 2023 Update on the Department of Education’s Third-Party Servicer Guidance – Blog

On April 11, 2023, U.S. Department of Education Under Secretary James Kvaal posted an important update to Dear Colleague Letter 23-03 – That February 2023 DCL rocked the higher education and ed tech community by proposing broad changes to the reach of the Title IV Third Party Servicer definition (34 C.F.R. 668.2; 668.25),  Specifically, that DCL described the types of services that would be considered activities of “third-party servicers”, a designation that the Department was seeking to utilize to secure additional transparency into the work of certain companies partnering with institutions of higher education that participate in Title IV, Higher Education Act student financial aid programs.  The Department notes it received more than 1,000 comments in the public comment period after publication of the DCL, and that it continues to review those comments in preparation for release of revised guidance.

Most critically, the Department has decided to delay the effective date of the guidance letter, and the September 1, 2023 deadline for compliance in the DCL will no longer be in effect. The effective date of the forthcoming revised final guidance letter will be at least six months after its publication, to allow institutions and companies to meet any reporting requirements. Deadlines for audit and contractual requirements will follow in fiscal years that begin after the effective date for the reporting requirements.  

The update also lists immediate changes in the interpretation of DCL 23-03 that the Department wanted to communicate immediately:

Specifically, the Department does not consider contracts involving the following activities to constitute third-party servicer relationships:

    • Study abroad programs.
    • Recruitment of foreign students not eligible for Title IV aid.
    • Clinical or externship opportunities that meet requirements under existing regulations because they are closely monitored by qualified personnel at an institution.
    • Course-sharing consortia and arrangements between Title IV-eligible institutions to share employees to teach courses or process financial aid.
    • Dual or concurrent enrollment programs provided through agreements with high schools and local education agencies, which are exempt because they do not involve students receiving Title IV aid.
    • Local police departments helping to compile and analyze crime statistics, unless they write or file a report on behalf of an institution for compliance purposes.
    • The Department will identify any other services that fall into this category as it reviews comments.
    • The Department also intends to remove the provision of the guidance document pertaining to foreign ownership of a third-party servicer. It will consider any further changes in the context of an announced future negotiated rulemaking on Third Party Servicer issues. 
    • The Department will carefully review public comments on areas of confusion or concern and consider clarifying and narrowing the scope of the guidance in several areas, including software and computer services, student retention, and instructional content. These clarifications could include other areas as it continues to review comments and seeks to balance the need for greater transparency and oversight against administrative burden, among other factors.
    • While the Department reviews the comments and prepares revisions to the guidance letter, previous Dear Colleague Letters GEN 12-08, GEN 15-01, and GEN 16-15 (as amended by our March 8, 2017, electronic announcement) remain in effect.

See Update on the Department of Education’s Third-Party Servicer Guidance – Blog

Department of Education Expands Regulatory Jurisdiction Over Service Providers for Institutions of Higher Education

Institutions of higher education (IHEs) and companies providing services to IHEs (including so-called online program managers or OPMs) should take careful note of two announcements by the U.S. Department of Education that could significantly impact the institution/service provider relationship and the Department’s oversight of that relationship.

First, and most immediately effective, the Department has revised its subregulatory guidance regarding the activities that make an entity providing services to an IHE a “Third Party Servicer” (TPS) for Title IV purposes. In a significant expansion over prior guidance, an OPM providing services to an IHE related to student recruiting and retention, providing software products and services involving Title IV administration activities, or providing educational content and instruction are now defined as a TPS. Being defined as a TPS comes with significant increased risk and compliance obligations by the third party and the institution. There is an open public comment period on this change through March 17, 2023.

Read the full text of this Alert on the Duane Morris website.

Important Update: On February 28, 2023, the Department published an update to Dear Colleague Letter 23-03 that makes clear the guidance does not become effective until September 1, 2023. The reporting deadline for institutions and third-party servicers to report to the Department is also extended until September 1, 2023. Further, the Department extended the comment period through March 30, 2023.

Webinar Replay: What Does It All Mean? The U.S. Department of Education’s Regulatory Reach Over Service Providers for Institutions of Higher Education

A video replay of the webinar “What Does It All Mean? The U.S. Department of Education’s Regulatory Reach Over Service Providers for Institutions of Higher Education” is available to view.

Consumer Financial Protection Bureau Proposes Mandatory Registration of Terms and Conditions: Nonbank Student Loan Servicers Among Those Potentially Impacted

On January 11, 2023, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) announced designs to create a public registry of terms and conditions in form contracts. Under the proposed rule (“Rule”), certain nonbank entities, including nonbank student loan servicers, would be required to register and submit information related to its terms and conditions that purport to waive or limit consumer rights and protections, along with identifying company information. The Bureau has opened up the Rule for a sixty-day comment period (closing on March 13, 2023), after which decisions will be made on its final form. Continue reading “Consumer Financial Protection Bureau Proposes Mandatory Registration of Terms and Conditions: Nonbank Student Loan Servicers Among Those Potentially Impacted”

New CA Bill for Student Proctoring

Student Test Taker Privacy Protection Act (SB-1172), limits the collection of personal data by proctoring services. The pandemic created a surge of online-proctoring services which utilize various types of personal information, such as a driver’s license, other identification and/or biometric data, to verify a student’s identity during a proctored exam. SB-1172 seeks to establish data protections for the online test taker. The Act prohibits a proctoring service from collecting, retaining, using, or disclosing personal information except to the extent necessary to provide the proctoring services. 

Most higher education institutions use outside proctoring services (such as Proctorio, ProctorU, Exmanity and ExamSoft) to administer proctored online exams so the institutions would be directly responsible for regulating the information collected. However, higher education institutions should take steps to ensure that the proctoring services utilized adhere to the bill’s restrictions. Current proctoring service contracts should be analyzed and likely amended to at a minimum include that the service provider will not collect, retain, use or disclose student personal information except to the extent necessary to provide the proctoring services.   

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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