(GEN-23-10) Implementation and Policy Guidance of the Pre-Dispute Arbitration Agreement Provisions

Publication Date
July 03, 2023
DCL ID
GEN-23-10
Subject
Implementation and Policy Guidance of the Pre-Dispute Arbitration Agreement Provisions
Summary
This announcement provides guidance on the implementation of the pre-dispute arbitration, class action waiver requirements, and submission of arbitral and judicial records in accordance with the regulations.

Dear Colleague:

Final Regulations Regarding Pre-Dispute Arbitration Agreements

On November 1, 2022, the U.S. Department of Education (Department) published final regulations governing the Federal student loan programs in the Federal Register (87 FR 65904). The final regulations included provisions relating to pre-dispute arbitration and class action waiver requirements imposed by some institutions participating in those programs. The effective date of these pre-dispute arbitration and class action waiver regulations is July 1, 2023.

The Class Action Bans and Pre-Dispute Arbitration Agreements Provisions

The 2022 Final Regulations included revisions to the Department’s regulations in 34 CFR 685.300 covering agreements between an eligible institution and the Secretary for participation in the Direct Loan Program. Generally, these revisions include prohibitions on:

  • Internal dispute resolution requirements (34 CFR 685.300(d)). An institution may not compel any student to pursue a complaint based upon a “borrower defense claim” (generally, a claim that is or could be asserted as a borrower defense claim by a borrower under the Department’s administrative process, see below) through an internal dispute process before the student presents the complaint to an accrediting agency or a government agency authorized to hear the complaint. The Department’s administrative process allows a Direct Loan borrower to request a discharge of the borrower’s loan based upon an act or omission of the institution attended by the student that relates to the making of a Direct Loan for enrollment at the institution or the provision of educational services for which the loan was provided, under standards established in the Department’s regulations.

  • Class action bans (34 CFR 685.300(e)). An institution may not seek to rely on a pre-dispute arbitration agreement or any other pre-dispute agreement with a student who has obtained or benefited from a Direct Loan with respect to any aspect of a class action related to a borrower defense claim as defined above.

  • Pre-dispute arbitration agreements (34 CFR 685.300(f)). An institution may not enter into or seek to rely on a pre-dispute agreement to arbitrate any aspect of a borrower defense claim as defined above with a student who obtained or benefited from a Direct Loan.

In addition, institutions must submit to the Department:

  • Arbitral records (34 CFR 685.300(g)). An institution must submit copies of certain records related to any claim filed in arbitration by or against the institution concerning a borrower defense claim.

  • Judicial records (34 CFR 685.200(h)). An institution must submit copies of certain judicial records related to any claim concerning a borrower defense claim filed in a lawsuit by the institution against the student or by any party, including a government agency, against the institution.

Implementation of the 2022 Final Regulations for Existing Pre-Dispute Arbitration Agreements and Class Action Prohibitions

We recognize that some institutions may have entered into mandatory pre-dispute arbitration agreements or other pre-dispute agreements addressing arbitration and class action prohibitions between July 1, 2020, and June 30, 2023. Under the new regulations, as of July 1, 2023, the institution cannot enforce such an agreement in relation to any borrower defense claim made by a Direct Loan recipient. Institutions with agreements with student Direct Loan borrowers or students for whom a PLUS loan was obtained and which includes a pre-dispute arbitration requirement or any provisions addressing class actions must amend the agreements and/or notify borrowers that those provisions will not be enforced using language specified in the regulations. Institutions are not required to issue new enrollment agreements or contracts to students who signed a contract with a pre-dispute arbitration agreement or class action prohibition prior to the effective date of the regulations. However, the institution must amend their agreements or provide the required written notification to those borrowers.

The regulations provide that institutions must do one of the following to comply with the requirements of revised 34 CFR 685.300:

  • Amend any mandatory pre-dispute arbitration agreement by July 1, 2023, to contain the language specified in 34 CFR 685.300(f)(3)(iii)(A) [“We agree that neither we, nor anyone else who later becomes a party to this pre-dispute arbitration agreement, will use it to stop you from bringing a lawsuit concerning our acts or omissions regarding the making of the Federal Direct Loan or the provision by us of educational services for which the Federal Direct Loan was obtained. You may file a lawsuit for such a claim, or you may be a member of a class action lawsuit for such a claim even if you do not file it. This provision does not apply to other claims. We agree that only the court is to decide whether a claim asserted in the lawsuit is a claim regarding the making of the Federal Direct Loan or the provision of educational services for which the loan was obtained.”] and, if the agreement also addresses class actions or there is a separate pre-dispute agreement addressing class actions, to contain the language specified in 34 CFR 685.300(e)(3)(iii)(A) [“We agree that neither we, nor anyone else who later becomes a party to this agreement, will use it to stop you from being part of a class action lawsuit in court. You may file a class action lawsuit in court, or you may be a member of a class action lawsuit in court even if you do not file it. This provision applies only to class action claims concerning our acts or omissions regarding the making of the Federal Direct Loan or the provision by us of educational services for which the Federal Direct Loan was obtained. We agree that the court has exclusive jurisdiction to decide whether a claim asserted in the lawsuit is a claim regarding the making of the Federal Direct Loan or the provision of educational services for which the loan was obtained.”]

  • By July 1, 2023, begin complying with the notice requirements. An Institution may also choose to notify students that it will not enforce mandatory pre-dispute arbitration agreements for borrower defense claims, no later than at exit counseling or the date on which the institution files its initial response to a demand for arbitration or service of a complaint from a student who has not already received a notice or amended agreement. The content of the notice is specified in 34 CFR 685.300(f)(3)(iii)(B) [“We agree not to use any pre-dispute arbitration agreement to stop you from bringing a lawsuit concerning our acts or omissions regarding the making of the Federal Direct Loan or the provision by us of educational services for which the Federal Direct Loan was obtained. You may file a lawsuit regarding such a claim, or you may be a member of a class action lawsuit regarding such a claim even if you do not file it. This provision does not apply to any other claims. We agree that only the court is to decide whether a claim asserted in the lawsuit is a claim regarding the making of the Direct Loan or the provision of educational services for which the loan was obtained.”] for existing pre-dispute arbitration agreements. We specified the text of the notice for a class action prohibition — whether in an existing pre-dispute arbitration agreement or in a separate pre-dispute agreement — in 34 CFR 685.300(e)(3)(iii)(B) [“We agree not to use any pre-dispute agreement to stop you from being part of a class action lawsuit in court. You may file a class action lawsuit in court, or you may be a member of a class action lawsuit even if you do not file it. This provision applies only to class action claims concerning our acts or omissions regarding the making of the Federal Direct Loan or the provision by us of educational services for which the Federal Direct Loan was obtained. We agree that the court has exclusive jurisdiction to decide whether a claim asserted in the lawsuit is a claim regarding the making of the Federal Direct Loan or the provision of educational services for which the loan was obtained.”].

Implementation of the Requirement for Submission of Arbitral and Judicial Records

An institution must submit to claimreporting@ed.gov a copy of the arbitral records for any dispute in arbitration based on a borrower defense claim that was pending as of July 1, 2023, or which was initiated after July 1, 2023, as specified in 34 CFR § 685.300(g):

  • The initial claim and any counterclaim

  • The arbitration agreement filed with the arbitrator or arbitration administrator

  • The judgment or award, if any, issued by the arbitrator or arbitration administrator

  • If an arbitrator or arbitration administrator refuses to administer or dismisses a claim due to the school’s failure to pay required filing or administrative fees, any communication the school receives from the arbitrator or arbitration administrator related to such a refusal

  • Any communication the school receives from an arbitrator or arbitration administrator related to a determination that a pre-dispute arbitration agreement regarding educational services provided by the school does not comply with the administrator’s fairness principles, rules, or similar requirements, if such a determination occurs

An institution must submit to claimreporting@ed.gov the following judicial records for any lawsuit based on a borrower defense claim that was pending as of July 1, 2023, or initiated after July 1, 2023, as specified in 34 CFR 685.300(h):

  • The complaint and any counterclaim

  • Any dispositive motion filed by a party to the suit

  • The ruling on any dispositive motion and the judgment issued by the court

Institutions must redact personally identifiable information (PII) from the records that they submit to the Department. Institutions must comply with the timeframes set forth in the regulations for submission of arbitral and judicial records. In accordance with the regulations, institutions must submit arbitral records within 60 days of filing or receipt and for judicial records within 30 days of filing or receipt.

In accordance with 34 CFR 668.24(a)(3), an institution must retain records that document its administration of the Title IV, HEA programs in accordance with all applicable requirements, including records that show that it complied with the requirements for submission of arbitral and judicial records to the Department. For purposes of complying with the submission of arbitral and judicial record requirements, the Department will consider copies of emails sent to claimreporting@ed.gov as meeting the program record requirements. The Department reminds institutions that it may request additional information and records from institutions, including original, unredacted versions of arbitral or judicial records that relate to Direct Loans or the educational program for which a Direct Loan was intended.

Contact Information

If you have questions regarding the specific contents of this announcement, please contact Rene Tiongquico at Rene.Tiongquico@ed.gov.

If you have questions regarding pre-dispute arbitration and class action waivers in general, please send them through the Customer Support process in Federal Student Aid’s Help Center at fsapartners.ed.gov/help-center/contact-customer-support. When submitting a question, please enter your name, email address, topic, and question. When selecting a topic, please select “FSA Ask-A-FED/Policy.”

Sincerely,
Annmarie Weisman
Deputy Assistant Secretary For Policy, Planning, and Innovation
Office of Postsecondary Education

Last Modified: 07/03/2023