Borrowers expect their income or credit history to send their loan costs up or down. Few, however, expect lenders to judge them based on what college they went to.

But that’s exactly what some of the nation’s largest banks are doing, a group of former federal regulators said. Companies including Wells Fargo & Co. are charging consumers more to borrow money if they attended less prestigious colleges, a form of educational discrimination that may violate credit laws and deepen inequality, according to a new study.

That means Harvard University students, already flush with opportunity, stand to gain an additional edge over their peers at nearby Bunker Hill Community College when taking out loans.

The Student Borrower Protection Center, a Washington-based nonprofit, found that Wells Fargo, one of the largest U.S. lenders, offers significantly cheaper loans to borrowers attending four-year colleges than to those at community colleges, while Upstart Network Inc., an online lending platform, charges a graduate from historically black Howard University almost $3,500 more to borrow $30,000 over five years compared with a similar New York University graduate.

“Despite assurances by these lenders that their practices lift up consumers from marginalized communities, our analysis shows that educational redlining can further drive disparities and inequality,” Seth Frotman, a former student-loan official at the Consumer Financial Protection Bureau who’s now executive director of the nonprofit, said in a statement. Redlining refers to the now-illegal practice of refusing loans based on where borrowers live.

Case Studies

The group chose Wells Fargo and Upstart as case studies to demonstrate broader issues across the industry. Both lenders disputed the Student Borrower Protection Center’s analysis.

“We follow responsible lending practices that take into account expected performance outcomes and are confident that our loan programs conform with fair lending expectations and principles,” Wells Fargo representative Vickee Adams said.

Upstart co-founder Paul Gu said his company works closely with the federal consumer bureau, and that Upstart’s statistics show that those who attended Howard University and borrow through his firm are more likely to get credit and at cheaper terms.

The findings come as lenders and their regulators in Washington embrace so-called alternative data as a way to cut borrowing costs and increase access to credit for historically under-served households. By using data such as a borrower’s alma mater, the argument goes, lenders can better price household loans than if they relied on traditional factors such as credit scores and personal income.

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