I’m going to college…maybe

My excellent adventure to college

Are student loan officers racists?

Some student loan providers have been setting rates based on the schools that borrowers attend, a practice New York Attorney General Andrew Cuomo reported. 

Cuomo said his office’s investigation of the $85 billion industry found that a “significant number” of lenders rank colleges and universities on the loan default rates of their students and set interest rates on private loans higher for schools with poor records, according to a letter he sent Monday to the chairmen of two congressional committees.

In other words, just as lenders in the mortgage industry once made judgments about credit lending in entire neighborhoods as a whole, so too are lenders making generalized judgments about student and parent credit risk based on a student’s ‘school neighborhood.

So students with “excellent” personal credit histories are quoted an 8 percent rate if they’re going to Duke University and 11 percent if they attend the University of Phoenix, in one of Cuomo’s examples. If their credit is less than “stellar,” Duke students get a rate no worse than 9.25 percent, while Phoenix students would see rates as high as 14 percent. Cuomo said the “disparities remain even if parents co-sign the loan.”. The student loan company Nelnet (based in Lincoln, Nebraska) was used for the above example.

While annual tuition and expenses at Duke tops $46,000, Phoenix — which heavily promotes its online courses — generally costs “much less than” $20,000. Among the issues raised by the “school credit scores” is whether they cause “socially unjust outcomes by unfairly burdening middle class, diverse populations who can least afford to pay extra on their ‘education mortgages,”‘ Cuomo said.

Is this a form a new age racism? The industry views the Ivy League student as clearly “on the path to success,” while the other student presents greater risk, admited John Dean, special counsel to the Consumer Bankers Association.

race and education

Not all lenders use the ranking system, So I think that student consumers and their parents should be given all ranking information upfront so they can shop for providers who don’t consider a school’s default rates. What are your thoughts?

June 30, 2007 Posted by | Student loan | 1 Comment