Student loans are very helpful for helping students cater for their college tuition and fees. However, where one attends college determines how much they will be charged when borrowing.

Community college students charged more to borrow

For instance, if two students who have the same grade seek a loan from the same bank but one attends a four-year institution, and the other attends a community college, the one going to a community college will have to pay more to borrow than those attending four-year schools.

This is according to a report by the Student Borrower Protection Centre released last week. The center examines how the use of education data in guaranteeing student loans may contribute to racial and economic inequality. The advocacy group indicates that the Upstart and Wells Fargo might be engaging in educational redlining by increasing the charges that historically marginalized groups pay to borrow.

The financial services companies have refuted the findings of the report while questioning the methodology used. However, researchers at the advocacy group hold that their findings are based on the available public data. They are calling for regulators and legislators to examine the use of education in lending.

Use of educational data for lending requires immediate attention

Katherin Welbeck, the civil rights counsel at then group, stated that just like the banks’ history of redlining in mortgages, they use of education data in credit guaranteeing can result in borrowers from marginalized groups receiving expensive loans. This is because of prejudices and assumptions of lenders regarding those they sit within the classroom. Katherin added that this raises serious concerns that require the immediate attention of legislators.

The researchers from the Student Borrowers Protection Centre conducted online surveys for two private student loans that Wells Fargo offers. They inquired about the undergraduate loans for those attending two-year degrees or career training and those attending four-year schools. Since banks offer a range of interest rates for student loans, the survey-based its analysis on average quoted rates to get the monthly and total payments of the loans.