Income-sharing agreements let students trade future earnings for investment
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Re: Income-sharing agreements let students trade future earnings for investment
#2Hey I know, we could package these Income Sharing Agreements (ISAs) together to reduce the risk of investing in duds. Then we could resell those. I'm sure the rating agencies would get on board. Tranche the sht out of that stuff, and it's fun times until we realize that people don't actually have jobs anymore, and your AAA CISA is dogsht. Sign me up!
OTOH... I just went back to university and am getting straight As or A+s after my first year doing Physics, Chemistry, Biology. So ... investors ... my trajectory will put me somewhere between Elon Musk and Ted Kaczynski. Who wants to bite?
Re: Income-sharing agreements let students trade future earnings for investment
#3So basically they're taking up a loan but without the legal protections and obligations of a loan? That's going to end well.
Re: Income-sharing agreements let students trade future earnings for investment
#4[deleted]
Re: Income-sharing agreements let students trade future earnings for investment
#5I love this idea, but perhaps these kinds of financing should be offered by university endowments or by government funds? In fact, it might be useful to replace student loans with this mechanism to align long-term incentives of universities & their students.
This sort of financing might also lead to a better understanding of what sort of programs are effective. I could see financing being available for particular programs. Arts would probably suffer. That said, I think humanities might get a renewed interest -- those who can communicate effectively and solve problems are the bedrock of traditional business.
Private investors? There are lots of things that work great with private capital -- I'm skeptical that financing education is one of them.
Re: Income-sharing agreements let students trade future earnings for investment
#6Hey I know, we could package these Income Sharing Agreements (ISAs) together to reduce the risk of investing in duds. Then we could resell those. I'm sure the rating agencies would get on board. Tranche the sh t out of that stuff, and it's fun times until we realize that people don't actually have jobs anymore, and your AAA CISA is dogsh t. Sign me up! OTOH... I just went back to university and am getting straight As…
I’m amused at the idea of going in as a group with your class. Getting other students to guarantee your obligations... I can’t quite figure out the natural consequences for, say a class of engineers or a class of English majors. For some domains you would expect a certain rate of inability to pay. In others you would expect a certain amount of income superstars.
Re: Income-sharing agreements let students trade future earnings for investment
#7Equity-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 agreements that can't be voided even in bankruptcy.
Re: Income-sharing agreements let students trade future earnings for investment
#8I love this idea, but perhaps these kinds of financing should be offered by university endowments or by government funds? In fact, it might be useful to replace student loans with this mechanism to align long-term incentives of universities & their students. This sort of financing might also lead to a better understanding of what sort of programs are effective. I could see financing being available for particular pro…
Yeah, let’s prop up the government and hedge funds with attached research arms. We should ignore the private companies that are already using ISAs, like Lambda School, to help people get job training to change their lives for the better and just assume that not for profits and the government will do things right because they have only the purest motives.
That worked out so well for the taxpayers and citizens of the US with student loans, and for the students. Giving universities another legal massive legal advantage over alternative means of education is a great idea. That couldn’t possibly go wrong.
Sarcasm aside ISAs are not a terribly new idea and universities have tried and failed with them before, Yale and Purdue, in part because no one in universities really cares about getting it right. If you don’t get paid more if you do well and don’t get fired if it’s a catastrophe your motivation is reasonably limited.
ISAs do need regulation but just presuming non profits and the government will do it right out of the goodness of their hearts... It’s ignorant.
Re: Income-sharing agreements let students trade future earnings for investment
#9Am 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, and if I used the finance major's payment percentage and term length, I would have paid $20k back over the term of 8 years which is basically like a 20% interest rate per year.
Re: Income-sharing agreements let students trade future earnings for investment
#10The 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 regulate out of existence exploitative student loan conditions. Instead this mechanism creates a whole new way that lenders can rip students off. The Yale example is good but let me pick at this:
>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.
There is a good reason why super high APR loans are heavily regulated - because they're almost certain to cause debt spirals and are only entered into by those who are desparate. The nature of finance companies creating these schemes is that the schemes will be designed to favour the finance companies not the students. So in no way does this solve the problems that students face.