How colleges game the student loan system — and hurt borrowers in the process

Colleges are paying a cottage industry of consultants to help them avoid government scrutiny, but these efforts can wind up hurting their former students, a new report from the Government Accountability Office suggests.

The GAO study is focused on the way colleges manage their “cohort default rate,” or the share of their students who have defaulted on their loans within three years of entering repayment. In order to stay eligible to receive federal financial aid, school’s cohort default rate must stay below a certain level.

The idea is to hold schools accountable when too many of their students suffer the worst possible student loan outcome — default — a sign that the colleges likely aren’t preparing students for the labor market.

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