The U.S. Department of Education recently announced proposed regulations designed to expand and improve the major student loan discharge programs authorized by the Higher Education Act. Among other things, the proposed regulations would prohibit institutions that participate in the Federal Direct Loan program from requiring borrowers to sign mandatory pre-dispute arbitration agreements or class-action waivers. The Department’s purported justification for prohibiting arbitration comes from Section 454 of the federal Higher Education Act, 20 U.S.C. Section 1087d(a)(6), which authorizes the Secretary of Education to include in the regulations “provisions as the Secretary determines are necessary to protect the interest of the United States and to promote the purposes of” the Direct Loan Program.
