Graduates Of Historically Black Colleges May Be Paying More For Loans: Watchdog
A watchdog group says that most financial firms could be discriminating against people based on where they went to college by increasing their interest rates.
The Student Borrower Protection Centre, a nonprofit watchdog group, applied for and received loan offers on Upstart, a lender website, which appeared to charge higher interest rates on student loans to graduates of predominantly Hispanic or historically Black colleges.
“It really raised some alarm flags,” said Kat Welbeck, civil rights counsel for the group.
They applied for dozens of loans online, posing as different applicants, including a 24-year-old man who lived in New York and earned $50,000 a year. They documented a range of constant factors each time they applied for a loan.
They used the fictional profile to apply for a loan several times, each time changing where the applicant went to school. In one case he went to Howard University in D.C, a famous historically Black college, and in another case, he went to New York University.
“The only difference was where he went to school,” said Welbeck.
They found that an applicant would pay about $3,500 more in interest and fees for a personal loan of $30,000 if they went to Howard University.
“There’s no other explanation that we can really come to terms with other than the fact that where this borrower went to school mattered in terms of how Upstart measured their creditworthiness,” said Welbeck.
They also found that applicants would pay more if they went to New Mexico State University, which has a very high percentage of Hispanic graduates.
The watchdog group, in a new report called Educational Redlining, said that lenders could be discriminating depending on where the loan applicants went to college.
“Our entire mission and the reason we get out of bed every morning is to improve access to affordable credit,” Upstart CEO Dave Girouard told NPR. “So we are absolutely supportive of the intent that credit shouldn’t be biased or unfair in any way.”
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However, Dave said that the test the group ran did not prove that using education as one of the factors leads to discrimination.
“Using hypothetical, contrived applicants for a loan who aren’t real people was both anecdotal and not reflective of the real world,” he said.
Dave added that his company is willing to meet with the group and talk about their concerns.