ABSTRACT
Alternative data, or information such as cell phone payments or utility bills, is increasingly used in underwriting by the financial services industry, especially financial technology or ‘fintech’ companies. Some financial companies have begun to use information about borrowers’ education history, including the identity or sector of the college or university a borrower attended, when determining access to and the cost of credit. For years, policymakers have weighed the use of alternative data to help expand access to credit for marginalized or underserved communities. Although helping consumers trapped outside of the credit market is an important policy goal, regulators have made clear that certain data can also pose serious fair lending and discrimination risks by introducing unfair biases and perpetuating existing disparities.
The use of education data in credit decisions is particularly troublesome given the continuing pattern of disparate access to education in America and the historical inequality perpetuated by the use of this information. Widespread use of this data by lenders could reinforce systemic barriers to financial inclusion for black and Latinx consumers. For example, African American and Latinx students are especially underrepresented at the nation’s most selective colleges and universities, with nine percent and 12 percent, respectively, represented at the most prestigious public universities …
Educational Redlining (February 5, 2020). Student Borrower Protection Center Research Paper.
First posted 2021-01-09 09:01:09
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