I suggested recruiting at some master's programs for our internship program, but was promptly rejected because they only consider undergrads. I don't understand their motives for this. Could it be consider a form of age discrimination?
It clearly would be discriminatory (in the broadest sense) because it creates a distinctive criterion that a priori defines who can, and who cannot, apply. However, ‘discrimination’ is just a synonym that has taken on all the negative connotations of distinguishing (a word with whom it shares a common root) and therefore one should sometimes wonder whether or not all ‘discriminatory’ acts are prima facie ill-advised. If you can rephrase the criterion in terms of distinguishing between different groups you’re (probably) on an ethically defensible high-ground.
Have you asked for a reason for this limitation? For instance, it could be something as simple as undergrad programs providing academic credit for internships, but masters programs not: which affects the employer’s obligation to pay the intern.