Back to School? Minority Student Loan Borrowers Be Wary

Jean Martin — Mon, 03 Aug 2009 15:12:48 GMT

As college-bound minorities take a step toward self-improvement, lenders could be sending them two steps back.

Lenders rely on complex, and at times secret, methods of determining what rate to charge a borrower for student loans. Some lenders, including the credit giant Sallie Mae, look at the borrower’s school to find out how many of its students have defaulted on their loans—and then factor that into the equation determining a specific borrower’s interest rate. The result may be a significant increase in the interest rate and fees on a student loan based partly on what school the student chooses to attend.

One problem with the use of so-called “cohort default rates,” as the U.S. Department of Education calls the statistics it requires schools to keep, is that some racial minorities default on their loans at disproportionately high rates. One analysis of federal data found that black students “had an overall default rate that was over five times higher than white students and over nine times higher than Asian students.” Hispanic students defaulted at twice the rate of white students and at quadruple the rate of Asian students.

The result could be a vicious cycle. Schools with high cohort default rates tend to serve disproportionately large minority and low-income populations. Students who attend those schools, in turn, may be charged higher interest rates. The practice, highlighted in 2007 by New York Attorney General Andrew Cuomo, prompted Sens. Patty Murray, D-Wash., and Christopher Dodd, D-Conn., to introduce legislation last summer that would have barred such a practice. It didn’t pass, and there is no sign that the credit industry has renounced the method. Congress did, however, order a study of the effect that such practices have on the cost of private student loans.

Practices that have a disparate impact on minorities may violate the Equal Credit Opportunity Act, a federal law designed to protect minorities from lending practices that treat minority groups unequally in credit markets.

The problem may be especially acute at schools such as community colleges that have elected not to participate in federal loan programs. Lower income and minority students are more likely to be among the more than 1 million students attending such schools. Student loans are accordingly much less accessible by racial minorities than by whites. Minorities must rely more heavily on expensive private loans and are at the mercy of a lender’s fuzzy math.

The stakes for minorities trying to navigate the already tumultuous waters of today’s recession are only going up. Defaults among low-income and minority students may rise as a growing number of new college students will be from their ranks because of demographic shifts and their efforts to boost their competitiveness in tight job markets.

The question is how long minorities will be charged more for their education simply because the schools they choose to attend serve more people who look like they do.

*This blog was written by our summer law clerk Cory Reiss, a rising 3L at Wake Forest University School of Law*

Originally posted at InjuryBoard by Jean Martin

Is Your Race Causing Higher Fees or Interest Rates for Your Loans?

Jean Martin — Tue, 23 Jun 2009 10:17:23 GMT

Today our nation uses credit for a wide array of necessities. Housing, transportation, and even education are funded through credit, making this investment one of paramount importance to the citizens of our country. With this investment, also comes the protection of the Equal Credit Opportunity Act (or ECOA), as enforced by the Federal Trade Commission (FTC). The ECOA ensures that no one is discriminated against on the basis of race, color, religion, national origin, sex, marital status, age, or the fact that someone is on public assistance.

Of course, there are some limitations imposed on applications for credit, and the terms of the credit. The legal guidelines for credit applications are income, expenses, debts, and credit history, among others, as these are considerations that can legally be determinative of your credit “worthiness.”

Here are some quick guidelines that you should consider when applying for credit. Creditors MAY NOT:

- reject your application or discourage you from application based on race, color, religion, national origin, sex, marital status, age, or if you are on public assistance

- consider any of the above qualifications in regards to application status

- impose different terms or conditions based on the above qualifications

- ask if you plan on having children

If you believe that you have been discriminated against, it is your right to take action. You may take the following steps:

- complain to the creditor directly

- contact the office of your state attorney general

- consider suing the creditor in federal district court

- report the violations to the appropriate government agency (a creditor MUST give you the name of someone to contact)

Say educated, and stay informed. It’s your future and your rights.

Originally posted at InjuryBoard by Jean Martin

Wilmington Personal Injury Lawyer - predatory lending

Back to School? Minority Student Loan Borrowers Be Wary

Is Your Race Causing Higher Fees or Interest Rates for Your Loans?