Student Loan Furor: Do Poor Kids Pay More?

June 17, 2007 — -- There's a new front in the war on shady practices in the college loan industry.

State and congressional investigators are looking into claims that top lenders may be charging some students higher interest rates after inappropriately considering factors such as the credit rate of other students at the borrower's school.

That practice may hurt the poorest students the most and leave them with decades of debt.

Nicole Gibson is one recent college graduate who faces a nearly unmanageable burden.

"I feel like I'm in a trap door and I can't get out," she says.

Two years after getting her diploma from the Rochester Institute of Technology in upstate New York, Gibson earns $1,400 dollars a month as a graphic designer. Her student loan payment is $1,200 dollars a month. That has forced her to make tough choices.

"I've got to sacrifice food on my table," she says. "And I don't see that as a fair option."

The student loan process can be tricky and intimidating for college students. Critics say it can also be unfair.

One of those critics is New York State Attorney General Andrew Cuomo, whose investigations prompted a national examination of college lending practices. He's concerned about the impact of unfair debt on students.

"They're being victimized when they go to those private lenders," Cuomo says. "And that's wrong."

In the past few months Cuomo's investigations have turned up deceptive and possibly illegal business practices in the student loan industry, including undisclosed relationships between universities and lenders. And now, there's a new concern.

"What we're finding," Cuomo says, "is that many lenders actually use the schools that you are attending as one of the factors in the equation. And this is startling to me, frankly."

Cuomo says the only factor lenders should consider when deciding who gets a loan and what interest they'll pay is the student's credit rating. He says it's not acceptable for lenders to also factor in the credit history of other students at the school.