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Published: Saturday, 6/30/2007

Red-lining the college kids

HERE'S more bad news America doesn't need: An ongoing investigation has discovered that red-lining is alive and well in the college student-loan industry, of all places.

Just when America needs more educated citizens to compete in the global economy, educational lenders are selectively discriminating. That's the same illegal behavior that has landed some mortgage lenders in big-time trouble.

This newest revelation in the $85 billion-a-year industry is that many lenders are making generalized judgments about students and parents' ability to repay loans based on students' school choice.

New York Attorney General Andrew Cuomo seemed as startled as anybody to learn that lenders are determining interest rates based on the colleges students choose instead of their creditworthiness. Few students have much credit history, which is why lenders say they decide loan rates based on their college's graduation rates and the students intended majors.

So what's next? Deciding loan rates based on where students shop?

One lender unabashedly divided colleges into groups according to how well graduates did at repaying federally subsidized loans. If a school's default rate was 3 percent or less, interest on private loans could be as low as 8 percent. But those who chose schools with default rates above 5 percent were given rates as high as 14 percent.

Students who chose private schools didn't escape the unfairness. Those with the same credit histories paid 8 percent for a private loan at Duke but 11 percent at the University of Phoenix.

That's unfair and immoral, and lenders have been getting away with it for too long.



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