Families and students assessing potential colleges should treadlightly when reviewing their student loan cohort default rates. Thenumber colleges publish, known as the cohort default rate (CDR),covering graduates during their first three years of repayment, maybe misleading.

According to a new report from the Government AccountabilityOffice, some schools have hired consultants that encourageborrowers with past-due payments to postpone future payments byputting their loans in forbearance to avoid default. Duringforbearance interest continues to accrue, which ends up costingborrowers more money that if they had put the loans in deferment, where interest doesn'taccrue on federal subsidized loans, or had enrolled in anincome-based repayment plan.

A typical borrower with $30,000 in loans who spent three yearsin forbearance would pay an additional $6,700 in interest,according to the GAO.

Colleges have a vested interest in limiting loan default ratesbecause if their rate is 30% or higher for three consecutive yearsor above 40% in a single year, they risk losing the ability toparticipate in the Federal Direct Loan and Federal Pell Grantprograms.

The GAO studied a sample of nine default management consultantsthat served more than 1,300 schools, which accounted for more than1.5 million borrowers in the 2013 CDR cohort. Five of the nineconsulting firms, which served about 800 schools, encouragedforbearance over other potentially more beneficial options to avoiddefault, and four of the five firms provided inaccurate ofincomplete information to borrowers about repayment options,according to the GAO. It did not identify the consultants or theschools.

The report concludes with a number of recommendations forCongress and the Department of Education. In some cases when theDOE objected to a recommendation it was converted into one forCongress. The recommendations are as follows:

• Congress should consider revising the cohort default rate (CDR)calculation to account for the effect of borrowers spending longperiods of time in forbearance during the 3-year CDR period.
• Congress should specify additional accountability measures tocomplement the CDR such as a repayment rate or replacing the CDRwith a different accountability measure.
• Congress should consider requiring that schools and defaultmanagement consultants that contact borrowers about their federalstudent loan repayment and postponement options after they leaveschool present those graduates with accurate and completeinformation. The GAO recommended that the DOE require this, but itobjected on the grounds that the Higher Education Act does notcontain “explicit provisions” under which it could require schools(and their consultants) to include that information.
• The chief operating officer of the Department of Education'sOffice of Federal Student Aid should increase the transparency ofthe data the department publicly reports on school sanctions byadding information on the number of schools that are annuallysanctioned and the frequency and success rate of appeals.
• The DOE should seek legislation to strengthen schools'accountability for student loan defaults. The DOE disagreed withthis recommendation as well, arguing that it “has a responsibilityto implement, and not draft, statutes,” so the GAO converted thatrecommendation into one that Congress should consider.

The DOE, according to the GAO, also criticized the GAO reportfor its “limited scope,” though it “inaccurately asserted” itsfindings were based on a small sample of interviews. The DOE alsocriticized the report for not taking into account enrollments inincome-based repayment plans as well as forbearance.