Planet Money did a podcast on this recently:
https://www.npr.org/templates/transcript/transcript.php?stor...
Income-sharing agreements let students trade future earnings for investment
21–30 of 264 posts
Re: Income-sharing agreements let students trade future earnings for investment
#22So basically they're taking up a loan but without the legal protections and obligations of a loan? That's going to end well.
It would be very difficult to do worse than non-dischargable debt, like students in the US get fit student loans. I think you can get rid of an ISA by going bankrupt as it’s just a loan with a variable repayment schedule dependent on income. That description elides from the fact that the terms are not standardised either in terms of caps on amount paid back or the time you pay back. It should still be dischargeable in bankruptcy though.
Re: Income-sharing agreements let students trade future earnings for investment
#23The obvious point to make is that American student loans already suck so this may be an alternative. However, this makes me feel really uncomfortable. The first is the same reason as student loans: At the age you're agreeing this you are very unlikely to correctly judge your own value. It's the same reason why students take on ridiculously onerous student loans. The solution to that problem in my mind though is to re…
>Purdue, for example, caps total payments at 2.5 times what a student borrowed, so the most successful don’t feel gouged. That would be a 15 year loan at 15% APR. That IS gouging. 15% APR isn't gouging. That's a typical APR for an unsecured personal loan, which this is. Well, it's actually worse than an unsecured loan for the lender since payment is tied to employment. So, not egregious. It's also not 15 years. The t…
> 15% APR isn't gouging. That's a typical APR for an unsecured personal loan, which this is.
My credit card is 15%. An unsecured personal loan is more like 4-9%.
Re: Income-sharing agreements let students trade future earnings for investment
#24The obvious point to make is that American student loans already suck so this may be an alternative. However, this makes me feel really uncomfortable. The first is the same reason as student loans: At the age you're agreeing this you are very unlikely to correctly judge your own value. It's the same reason why students take on ridiculously onerous student loans. The solution to that problem in my mind though is to re…
15% on student debt? Jesus christ - it's more expensive than unsecured lending / credit card debt
Good luck getting a credit card that’s caps repayment at 2.5 times the amount borrowed.
Re: Income-sharing agreements let students trade future earnings for investment
#25Am I reading this right? You have to pay 2.5% of your income for 7 years as a comp sci graduate for a loan of only $10k. Seems like a pretty terrible deal. Edit: Avg comp sci grad salary from Purdue is $72k, assuming 5% raises on average including promotions, you'd pay about $14.6k for this loan, which is roughly equivalent to a loan with an 11% interest rate per year over 88 months. Edit2: I was a business major, an…
You are comparing a loan to an equity. The ROI on equity usually is higher than on a loan, if all goes well. But the risks are higher.
In this case, if you graduate AND work AND at an average salary AND have no health problem, you payout will be higher than on a loan. But if any of these condition is not met (eg: you have trouble finding a job, your starting salary is lower than expected, ...) then you don’t have to pay as much. It’s more expensive in a best case scenario, but much more comfortable and safer in any other case. The risk is shared between you and the « lender ».
Re: Income-sharing agreements let students trade future earnings for investment
#26Earlier quoted context omitted.
>Purdue, for example, caps total payments at 2.5 times what a student borrowed, so the most successful don’t feel gouged. That would be a 15 year loan at 15% APR. That IS gouging. 15% APR isn't gouging. That's a typical APR for an unsecured personal loan, which this is. Well, it's actually worse than an unsecured loan for the lender since payment is tied to employment. So, not egregious. It's also not 15 years. The t…
> 15% APR isn't gouging. That's a typical APR for an unsecured personal loan, which this is. My credit card is 15%. An unsecured personal loan is more like 4-9%.
Please show me where an unemployed person with uncertain future prospects and neither a work history nor any assets can get an unsecured personal loan for 4-9%? I'll even give you a pass on the requirements of the loan payback being subject to employment or a minimum income, a payment cap or a term limit.
Adding to the above, as noted the edit to my previous comment, even the 15% APR number is wrong in general. An English major would have to earn over $500,000 in 7 years to hit that APR.
Re: Income-sharing agreements let students trade future earnings for investment
#27What happens if students sell 100% of their future income?
Re: Income-sharing agreements let students trade future earnings for investment
#28Equity-based student loan funding is way less predatory than debt-based student loans, in my opinion, but every comment I read screams "slavery" and "wage-slave". Of course, both types of funding can be benevolent and/or predatory depending on how you structure the terms, just like anything else. Unfortunately, our laws don't do a very good job of educating or warning young adults who are all entering predatory loan…
The answer of course is that society should fund education in the same way as it does roads, bridges, national parks, security, governance, and other social goods. With tax dollars.
Re: Income-sharing agreements let students trade future earnings for investment
#29What happens if students sell 100% of their future income?
I don't think that would be enforceable. Besides, no sane investor would go for it.
Re: Income-sharing agreements let students trade future earnings for investment
#30Fitting that in a world where all the same old labor fights that were settled in the past are happening again that someone would un-ironically invent a new form of indentured servitude.
Makes me laugh at people who think that non STEM subjects have no value. Perhaps opening a book in one of those non STEM fields once in a while would help you avoid reinventing things consigned to the dust bin of history without realizing it.
Nearly but not quite as rich as when ride-sharing companies accidentally invent the city bus.