There's nothing to follow - most of the comments here are wrong.
ISAs align incentives between teaching institutions and students, they're strictly better than the tuition model. They don't fix all issues because they still require selectivity on admissions (since the school needs to students to succeed in order to survive).
ISAs are also not guaranteed to be good, but the ones originally used by Lambda School were good (Lambda School is somewhat of a third rail topic on HN, so it's worth just considering the terms).
- Only require repayment if students gets a software job making >50k.
- Payment was bounded to 10yr or 30k whatever happens first.
Compare to college tuition which charges huge sums of money often paid for by non-defaultable loans and schools don't really care if students ever get employed by anyone.
From his tweet thread conclusion:
1. Consumers are confused by ISAs
2. And when they take the deal, they often behave poorly
3. And when they behave poorly, you don't have great recourse
4. And there's a looming regulatory threat
5. And the financial markets aren't supportive
My takeaway from this is that it's harder to build an incentive aligned business that really gets students to succeed than it is to take their money as tuition and not have to worry about that so much for business building. I guess I'd argue no shit - that's why ISAs are better, they force the companies to be good at getting positive student outcomes because it's an existential risk if they don't.
> ISAs align incentives between teaching institutions and students, they're strictly better than the tuition model.
Well, there's two ways you could operate an ISA:
1. You invest $20k in each student, carefully selecting only the applicants who are most likely to succeed, and giving them the most impactful, high-ROI courses you can, so that they almost all repay at least $20k
2. You invest $500 in each student using prerecorded video classes and assignments graded by unpaid 'mentors', take on far more students, and every time you luck into a student who repays $30k that's pure profit, baby.
You missed a third way which I think is actually most likely, given recent monetary stimulus policies:
3. You invest $500 in each student using prerecorded video classes and assignments graded by unpaid 'mentors', take on far more students, then structure groups of ISAs together into ISA-backed bonds, which you then sell to pension funds and other institutional investors for 15% off par value, or $25.5k each.
Not only do you get paid up front, but whether or not the ISAs eventually get paid back is no longer your problem. Also now instead of recruiting and vetting 200 teachers to teach your 2000 students, you recruit 10 teachers and a couple experienced sell-side traders and analysts.
To be fair, the original post was complaining that he couldn't find suckers to sell the loans to ^W^W^W "there are not mature capital markets for ISA programs to tap".
This is true and one of the initial criticisms of "there's not necessarily incentive alignment here" I thought of when I first encountered the idea. Hearing about #2 happen in reality is also sad. Though I think over longer periods more competition and reputation trashing has a chance to correct some of #2. Nevertheless I think "University" of Phoenix is still operating and hoovering up tax payer money despite being an internet punching bag for years, so...
"ISAs align incentives between teaching institutions and students, they're strictly better than the tuition model."
That's very, very hand-wavey. I'm in broad agreement with you that, at this moment in time, ISAs are probably better than tuition for most people, however, they are an immature financial instrument (relative to traditional tuition loans) and so little effort has been into extracting as much profit from them as possible... but that doesn't mean it's not possible, nor does it mean that it won't happen, and it certainly doesn't mean that there is some inherent alignment between ISA institutions and students.
All the positives about ISAs could have been said about student loans a few decades ago! That's before even challenging the assumption that higher student income is best for all parties involved: if a student discovers that actually, their new career is miserable, there is suddenly a huge incentive mismatch.
> "They are not incentive aligned for students who make between 0-50k. Lambda gets no money."
The are aligned because <50k is a failure for lambda. They're aligned because they need students to make >50k.
> "They’re extremely unaligned for students making a little over 50k. The student takes home drastically less money because they hit the threshold."
The point of lambda school is to get people decent jobs when they didn't have any good options prior to that. A little over 50k where 14% of salary is paid back is the worst case, but probably still better than before. Definitely better than >50k of debt and no job from tuition costs.
> "But once you go above that range they are no longer aligned because lambda is capped out."
Good student returns funnel more students into the program. If you can succeed with this at scale it's a big deal. If they can actually teach people to dev vs. just selling a credential there are even more ways to build on this.
The ISAs are being sold to investors. It's in the interest of the teaching company to set the price as high as possible and minimize program spend, not as low as possible with maximum program spend (which is what the student wants).
ISAs align incentives between teaching institutions and students, they're strictly better than the tuition model. They don't fix all issues because they still require selectivity on admissions (since the school needs to students to succeed in order to survive).
ISAs are also not guaranteed to be good, but the ones originally used by Lambda School were good (Lambda School is somewhat of a third rail topic on HN, so it's worth just considering the terms).
- Only require repayment if students gets a software job making >50k.
- Payment was bounded to 10yr or 30k whatever happens first.
Compare to college tuition which charges huge sums of money often paid for by non-defaultable loans and schools don't really care if students ever get employed by anyone.
From his tweet thread conclusion:
1. Consumers are confused by ISAs
2. And when they take the deal, they often behave poorly
3. And when they behave poorly, you don't have great recourse
4. And there's a looming regulatory threat
5. And the financial markets aren't supportive
My takeaway from this is that it's harder to build an incentive aligned business that really gets students to succeed than it is to take their money as tuition and not have to worry about that so much for business building. I guess I'd argue no shit - that's why ISAs are better, they force the companies to be good at getting positive student outcomes because it's an existential risk if they don't.
That's kind of the entire point.