Bias Cited in College Lending
New York Attorney General Andrew Cuomo says at least three student- loan companies may unfairly charge a uniformly higher rate to students at colleges with populations that are less affluent or include more minorities. Instead, Mr. Cuomo says the companies should base the rates on a family's credit rating.</br></br>He compared the practice to discriminatory "redlining," when banks and other lending institutions offered less-favorable loan terms to residents of certain areas, such as inner-city neighborhoods. He identified Nelnet Inc., Lincoln, Neb.; Student Loan Xpress Inc., a unit of CIT Group Inc.; and Northstar Education Finance Inc., St. Paul, Minn., as firms that take the institution's information into account when making loans to students, such as the default rate of the school and the earnings history of graduates.</br></br>Mr. Cuomo's allegations ramp up a new front in his nationwide student-loan-industry investigation, which has exposed widespread payments from lenders to financial-aid officials that he says have compromised the advice offered to students. Congress is cracking down on such practices.</br></br>Taking institutional factors into account raises disclosure concerns, particularly since entering students aren't informed that "by the way, which college you pick is a factor in what loan you get and what interest rate you pay," Mr. Cuomo said.</br></br>Lenders say that information can be an important tool when assessing a student's future ability to pay back debt. "When you are making student loans, the collateral is the underlying education," measured by such factors as earning potential of its graduates, says Jamie Wolfe, Northstar's chief financial officer.