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Comment by everdev | Hacker News Reader

> After the program graduates pay 15% of their income for 2 years if they are earning over $40,000, capped at $30,000 total paid back to Modern Labor.

Something about taking a cut of someone's salary doesn't feel right to me.

If you were to borrow the $10k that they give you, over a 2 year period at a 10% rate (maximum allowed by law in CA), you'd pay a little over $11k. Modern Labor will charge you up to $30k over that same 2 year period, for an interest rate north of 100%.

How is this initial $10k different from a loan? Just because it's coming out of your salary doesn't mean it's not usurious.

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> If you were to borrow the $10k that they give you, over a 2 year period at a 10% rate (maximum allowed by law in CA)

10% is the maximum allowed in CA for non-exempt lenders. However, a seller of services to the public financing the services they sell is exempt as a retail installment lender, and has no maximum (most actual lending other than informal person-to-person lending is exempt.)

> Modern Labor will charge you up to $30k over that same 2 year period, for an interest rate north of 100%.

They aren't charging you $30,000 to repay the stipend, but the stipend plus the training, which they compare to a $15,000 cost coding bootcamp; $30,000 over over about 2¼ years (roughly the time from the midpoint of the stipend and training) for $25,000 is a little north of 15% annual interest rather than over 100%. And that's assuming a minimum income of $200K in the two years immediately following the program; any lower and the payback is lower, too.

Because, what if they don't earn over $40,000?

It's a numbers game. Out of N graduates, some will pay back $30K, some will pay back $0, some will pay back something in between. For those who pay back $30K, it may be a bad deal... except they're the ones who made the most in salary, too.

I'm not sure whether that's a fair deal or not.

It seems to me, though, that the hotter I thought I was, the less I should be willing to take this deal, because the more I thought it would cost me...

Yeah, I get from the company perspective how the risk is spread across multiple candidates.

But from the individual perspective, it seems to be way higher than the max interest rates allow.

Now imagine colleges saying you can pay your $300k 4-year tuition up front or pay us 15% of your salary until you pay us $900k. Already wealthy kids will have an even bigger leg up in life because they'll pay their tuition up front. While those who had to choose between an aggressive loan or no education will have to pay an extra $600k.

Right now, with student loans capped at 5-7% it's still a huge disadvantage to those that need to borrow. I can't imagine if this lending model is extended to classical universities how much a 300% repayment rate will drag down those who are already struggling with 5-7%.

Well, the difference is that you are not obligated to pay the loan back if you don't earn any substantial amounts of money. And if you have to pay, the amount is adjusted to your salary, so you can be sure that you can afford paying back. I'm not defending this actual offer, I haven't really looked at the specific terms. But in general I find this quite a compelling model. My alma mater in Germany, which was a private university, offered a similar model. Instead of tution (~42'000) you could choose to pay back 10 years 9% of your salary (if it exceeds a certain threshold), capped to 2x of the tution. Basically, it is a bet on your employability. It only works out if your graduates succeed in searching and keeping a job. Additionally the model gives to the gradudate the freedom to choose a job without looking at the salary, because the payback is adjusted to your salary. I think offering this option at American colleges would rather help, and generally I think its not usurious, and quite different to a loan. But then again it depends on the specific terms.

I just can't get passed the 300% return rate. I don't understand how charging that much is legal.

I feel like it's somewhat predatory because only people who are struggling to make ends meet would accept such an offer. It's specifically designed and marketed towards people who can't save $10k. Nobody who can save $10k would take this offer IMO.

> I just can't get passed the 300% return rate. I

It's a 300% return rate only because you are assuming the repayment only covers the $2K/month stipend ($10K total), with $0 tuition equivalent. They are comparing the program to $15K tuition programs (and also saying it offers more). If you assume the payback is for the stipend plus $15K in tuition, it's a lot more reasonable. If you assume that they are offering 1/3 more than a $15K tuition program so that the tuition equivalent is $20K, it's effectively a zero interest loan at the maximum repayment amount.

> I just can't get passed the 300%

At least you understand your mental limitations. But this is also a form of false charity, where you make decisions on behalf of others in order to signal virtue. This is a business model that should be supported - because those of us with basic economic literacy know that competition will reduce corporate profits to market rate.

College is a misplaced job training program that is a self perpetuating status symbol. The poor NEED this model to be disrupted.

Yeah, not a fan of college either, but I'm also against marketing high repayment loans to the poor.

Students already struggle with 5-7% student loans. Sure, this is less total money, but just bring the repayment down to something reasonable like $30k over 10 years to offer a rate that doesn't exceed maximum interest rate laws.

> Sure, this is less total money

Oh, MONEY - who cares about that stuff. Not the poor, they got tons of it.

I get the feeling you and your parents are well off. And I say that only because I've only met rich white people who are versed in Marxism.

> I've only met rich white people who are versed in Marxism

Wow. I'm old enough to know that when someone tries to attack you personally, it's because of something deeper in their life and not about the subject matter anymore.

Sounds like you're really upset that someone wouldn't agree with you on this topic. If you're open to staying on the subject matter, are you OK with any limit? A $50k payback? A $100k payback?

A long time ago the US decided to put a maximum rate on loans. I guess I don't understand if you think maximum interest rates are Marxist or something else, because I'm only talking about the interest rate part of this equation.

Sorry I did get annoyed. I've had similar ideas for this model and ultimately feel like it would be dismissed out of a sense of moral justice. Would I be okay with a 100K payback? In theory sure, thats the model for elite universities and no one seems to be concerned for their wellbeing. The determining metric would be ROI. The proposed model limits risk and incentivizes instructors to produce the most valuable curriculum. As more companies compete in the space, unskilled workers win because they now have a bridge to become skilled. Not only that, they're receiving cash while doing so!

I want to see this model taken to the extreme. Offer luxury living to students while they learn, and offer work from home positions upon graduation. Have developers compete to create modern campuses that compete for unskilled labor. They would only do this knowing there's profits to be shared by developing the unskilled to the skilled.

At least it aligns incentives: the bootcamp wants you to have a high paying job. A bank who gives you a loan doesn't care if you have a decent job so long as they can squeeze loan payments out of you.

If this 3x return is legal, imagine the rush on home loans like this.

Mortgage Company A is feeling virtuous and really wants people who can't afford down payments to be able to afford houses too. So, they offer up $300k and simply take 15% of your paycheck for 30 years until they've collected $900k.

A 30 year fixed at 4.5% would cost you $547k total over the life of the loan. Mortgage Company A is instead making $900k where they used to make $547k.

The problem with these loans is that desperate people accept them. It's the person who can't save enough for a downpayment and is getting kicked out of their rental that will agree to such a usurious loan.

It's the reason why we have a maximum interest rate to begin with. Because without it, it's possible to find someone in a tight spot and make a ton of money off of their temporary misfortune.

> Something about taking a cut of someone's salary doesn't feel right to me.

Ummm, that's how the whole tech industry works. Ever work for a recruiter? They're taking a cut of your salary.

The company that hires you pays it, not you.

It's amusing that you believe there's a significant difference between those two scenarios.

How is it any different? Everybody is getting pimped out in this industry.

It's multiple orders of magnitude different.

A company making a $100k/year hire might have $1M ARR. To them, the $15k commission is 1.5% of their annual budget. If the employee pays, it's 15% of their annual income. If recruiters charged 15% of a company's annual income no one would pay it, or it would bring a company to its knees.

If you do not have the money to pay back (i.e. low salary or unemployment), you are forgiven the debt. That's the difference from a loan.

In this equation you are valuing the bootcamp and career placement portion of their offering at $0. If you were to value it $10-15k then it is a different story.

At the end of the day they are offering a lot more than just 10k. They are offering training AND placement assistance. They are also assuming the costs of the people who fail to complete the program of get a job.

At least it means if you are not doing well later, you aren't bogged down by repayments or the threat of default.

Being an alumni of a particular institution might in itself provide value though. It doesn't now obviously – it's too young – but over time if it turns out this organization produces quality devs then employers may very well use that as signal when singling out CVs for interview calls.

If someone can get a loan, then they should clearly do that instead of using this company. If not, then their options are this company or no education (assuming education costs this much).

That's loan shark mentality: "Sure the rate is high, but you should take this money because you're in a tight spot and it's the best offer you'll get."

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