The book Weapons of Math Destruction talks all about this. I've come to believe that pure risk shouldn't be the only factor in a person's interest rate.
That obviously makes a ton of sense from a business standpoint. You want to contain losses for risky borrowers but compete with other lenders for low risk borrowers.
But socially, this is perverse. People tend to be risky because they are already poor. So now money costs more for those who have the least of it. This is one of the feedback loops that makes poverty (and affluence, for that matter) so sticky.
I had this realization in my personal experience when I was able to refinance almost $100k in student loans at a crazy low interest rate. My household's finances are in great shape as my wife and I enter our prime earning years. But for us, such an opportunity is a gift, on top of an already sweet situation. The savings could be a game changer for a family whose finances are more marginal.
That obviously makes a ton of sense from a business standpoint. You want to contain losses for risky borrowers but compete with other lenders for low risk borrowers.
But socially, this is perverse. People tend to be risky because they are already poor. So now money costs more for those who have the least of it. This is one of the feedback loops that makes poverty (and affluence, for that matter) so sticky.
I had this realization in my personal experience when I was able to refinance almost $100k in student loans at a crazy low interest rate. My household's finances are in great shape as my wife and I enter our prime earning years. But for us, such an opportunity is a gift, on top of an already sweet situation. The savings could be a game changer for a family whose finances are more marginal.