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January 18, 2008

Borrowers Accuse Sallie Mae of Racial Discrimination

Two borrowers of student loans have filed a lawsuit against Sallie Mae, accusing the lender of charging higher interest rates and fees to minority students.

In the lawsuit, Sasha Rodriguez, a Hispanic woman in Connecticut, and Cathelyn Gregoire, an African-American woman in Florida, assert that Sallie Mae discriminates against minority borrowers by taking colleges’ default rates into account when setting interest rates. Institutions that serve large numbers of minority students often have higher default rates than other colleges do.

The lawsuit, which seeks class-action status, also accuses Sallie Mae of violating the Truth in Lending Act by failing to conspicuously disclose its underwriting criteria and waiting to disclose the terms and conditions of its loans until after students receive their funds or start classes.

Sallie Mae acknowledged in a Congressional hearing last summer that it considers an institution’s overall default rate when setting interest rates. That admission prompted New York’s attorney general, Andrew M. Cuomo, and Rep. George Miller of California, chairman of the U.S. House of Representatives education committee, to ask other lenders for their underwriting criteria.

Sallie Mae has until February 15 to respond to the lawsuit, which was filed in U.S. District Court in Connecticut. The lender disclosed the litigation last month in a regulatory filing with the Securities and Exchange Commission, saying it intended to “vigorously defend this action.” —Kelly Field

Posted on Friday January 18, 2008 | Permalink |