Student loan defaults fuel probe of Ky. for-profit colleges; impact may be disproportionately rural

UPDATE, July 27: Kentucky Attorney General Jack Conway filed suit today against Daymar College, alleging that it coerced as many as 5,000 students into buying overpriced textbooks and misled students about credit hours and financial aid. Daymar denied the charges, Mike Wynn of The Courier-Journal reports.

More students are defaulting on their college loans, and the default rates are higher among students of community colleges and for-profit institutions that often call themselves colleges but are essentially business and trade schools. Community colleges have long been a key source of higher education for rural areas, and the for-profit Daymar College, which has the highest default rates in Kentucky, has disproportionately rural locations in that state and Ohio.

John Cheves of the Lexington Herald Leader reports that these schools account for 26 percent of federal student loans and 43 percent of the defaults. To find your state's loan default rates or search for a specific institution's rates, click here. Cheves reports that Daymar, which also has campuses in Tennessee (where state law requires it to be called Daymar Institute, not College), had "one in three students" at two of its Kentucky campuses default within three years of their 2008 loan repayment start date, according to the U.S. Department of Education.

These factors, student complaints, questionable accreditation and allegedly deceptive marketing have led to a state-wide investigation of Daymar College and the State Board of Proprietary Education by Kentucky Attorney General Jack Conway. "My concern is that a lot of people are hurting right now, and these schools are preying on them," he told Cheves. "Nobody discloses upfront that you can end up with all this debt and a degree that you can't do anything with."

Taxpayers have a stake in the game. "A lot of the proprietary schools get 80 to 90 percent of their money from federal student aid, the loans and the Pell Grants," Debbie Cochrane of the Institute for College Access and Success in Oakland, Calif. told Cheves. "If they lose access to that aid, they basically have to close." (Read more) Defending for-profit schools, A.R. Sullivan, chancellor of Sullivan University, wrote in an opinion piece in the Herald-Leader, "The community colleges in Kentucky graduate, on average, less than 20 percent of their students, while the proprietary and taxpaying institutions graduate over 61 percent of their students."