Though some instructors mentioned tracking student data (for various purposes) in their LMS, most said that they rarely, if ever, do this. So while it does happen, student data tracking is a fairly rare occurrence.
There is an initiative at CU Denver to use aggregated student data to track progress and perform course (and faculty) evaluations. In the open-ended comments on the survey, one faculty member expressed a lot of concern regarding this subject. The interviewee from CU Denver argues that this will be highly beneficial for improving students’ learning experiences, as it will help identify teaching practices which are/are not working, as well as help to incentivize faculty to ensure that students are interested, engaged, and actively learning new material.
CU LMS Privacy Survey Data Visualizations 