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Media Domino: A Blog About Student Debt A Shadow Industry is Manipulating Student Loan Borrowers’ Default Rates—It’s Time to Stop these Practices

A Shadow Industry is Manipulating Student Loan Borrowers’ Default Rates—It’s Time to Stop these Practices

By Tariq Habash | December 10, 2020

Today, we released a new issue brief detailing how predatory for-profit schools team up with cohort default rate (CDR) manipulation companies to evade critical rules designed to protect borrowers who attended schools with high default rates. To address these abuses, we issued new recommendations to the Biden administration to strengthen accountability for schools and companies.

Over the last year, the Student Borrower Protection Center has been investigating the ecosystem of players and practices that have long propped up the for-profit school industry. This web of predatory actors has been a lifeline for these schools—providing critical support for unscrupulous programs and exploiting loopholes that enable these schools to access and maintain eligibility for billions of dollars in federal student aid. Despite serving as essential cogs in a market that has left millions of vulnerable borrowers with billions of dollars in risky debt, these firms have long flown under the radar of federal and state regulators and law enforcement officials.

Our new issue brief exposes CDR manipulation companies—a class of specialty student loan companies that assist for-profit schools in evading the consequences for failing a key federal accountability requirement known as the cohort default rate or CDR. A growing body of evidence shows that these contractors manipulate schools’ CDR metrics by driving borrowers into forbearance—a short-term repayment option that increases loan costs and is often a precursor to long-term financial hardship.

The issue brief lays out a series of recommendations to end the abuses of the CDR manipulation companies that have been hurting borrowers and gaming the system for far too long. To stop these practices:

  • Law enforcement officials and federal and state regulators must scrutinize CDR manipulation companies for their unfair practices.
  • The Secretary of Education must clarify that the Higher Education Act doesn’t preempt state consumer protection and licensing laws from holding these companies accountable.
  • The Secretary of Education should prioritize action to halt unlawful CDR manipulation.
  • Officials across the government must prioritize relief for borrowers failed by this broken system.

In order to truly tackle for-profit school abuses and protect students and borrowers, the Biden-Harris administration, state regulators, and law enforcement officials must hold accountable the web of companies that allow predatory schools to continue to prey on students.


Tariq Habash is Head of Investigations at the Student Borrower Protection Center.

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