WASHINGTON–A consumer group that acts as a watchdog for student loan borrowers has suggested one lender is charging higher interest rates on student loans to graduates of historically black or predominantly Hispanic colleges.
The Student Borrower Protection Center said it ran a test on one fintech lender specializing in student loans, Upstart, and said its findings ‘really raised some alarm flags,” according to Kat Welbeck, the SBPC’s civil rights counsel.
The organization told National Public Radio it was able to easily apply and get loan offers on its website. It said it applied for “dozens” of loans posing as a 24-year-old man who lives in New York and works as a financial analyst and makes $50,000 a year. Each time the group applied for a loan, it kept a whole range of factors constant, the SBPC told NPR.
"The only difference was where he went to school," Welbeck told NPR. It applied as if this fictional borrower went to NYU in New York, many other schools and Howard University — one of the country's most famous historically black colleges and universities, the report added.
“The group found that if the otherwise identical loan applicant went to NYU instead of Howard, there was a striking difference. For a $30,000 personal loan with a five-year term, it found an applicant would pay about $3,500 more in interest and fees if they went to Howard,” NPR said.
‘No Explanation’
Added Welbeck, “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.”
The group said it also found a borrower went to New Mexico State University-Las Cruces, which has a high percentage of Hispanic students, paid more.
Upstart CEO Dave Girouard told NPR the company welcomes the vigilance.
"We definitely appreciate the intent," Upstart CEO Dave Girouard told NPR.
Girouard, a former senior executive at Google, said he founded Upstart to use technology to make credit more available. Girouard said the company looks way beyond credit score — it examines more than 1,000 factors.
"Our entire mission and the reason we get out of bed every morning is to improve access to affordable credit," Girouard told NPR. "So we are absolutely supportive of the intent that credit shouldn't be biased or unfair in any way."
‘Not Reflective of Real World’
Girouard told NPR the test the nonprofit ran doesn't prove that using education as one of those many 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.
Moreover, Girouard told NPR Upstart has tested for fairness and bias over "millions of applicants. Our approach to ensuring that our platform isn't biased against anybody is by doing testing regularly, at massive scale."
According to the Consumer Financial Protection Bureau, Upstart told the agency when compared to traditional lending models the company "approves 27% more applicants than the traditional model, and yields 16% lower average [interest rates] for approved loans."