Income-sharing agreements let students trade future earnings for investment | Hacker News Reader

Income-sharing agreements let students trade future earnings for investment

bloomberg.com

122 pointspseudolus244 comments

The 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.

15% on student debt? Jesus christ - it's more expensive than unsecured lending / credit card debt

Credit card interest rates can easily approach 25% for those who don't pay off their balance.

Good luck getting a credit card that’s caps repayment at 2.5 times the amount borrowed.

first, student debt is unsecured lending. second, where are you getting a credit card with less than 15% APR. I want one too.

Student loans can’t be discharged in bankruptcy and are often backed by the government so a default gets paid in full. Basically, effectively secured.

The credit card I have via my credit union has a 13.24% APR. I'm fairly sure that's pretty normal if you have good credit and pay on time - I certainly didn't go out of my way to look for a low interest card.

>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 term maxes out at less than 10 years for English majors. The person being interviewed is on the hook for 8 and a half years.

EDIT: Where did you even get the 15% APR from? 2.5 times what the student borrowed does not work out to 15%, unless the debt is paid off in under 7 years.

A 15% APR over 15 years would be over 8 times the original loan amount.

> 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.

> 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%?

Every high street bank in the UK offers a student overdraft facility, e.g. HSBC[0] offers a guaranteed £1000 0% overdraft, with up to £3000 depending on how long you've had it. Other banks offer credit cards with 0% interest for students too.

Finally, student's aren't the same category as > an unemployed person with uncertain future prospects and neither a work history nor any assets

While that is a technically true statement, it's ignoring the fact that <4% of recent graduates are unemployed. While that makes them higher risk than an engineer in SV making 6 figures, it absolutely doesn't have students in the same risk category as an unemployed disabled veteran.

[0] https://www.hsbc.co.uk/current-accounts/products/student/

(1) You cannot use a UK high street bank to finance a US student loan

(2) 1000 GBP or even 3000 GBP is not nearly enough to pay for college

Students which are likely to use this type of financing are very much in the same category as an unemployed person with uncertain future prospects and neither a work history nor any assets. They don't have any assets or income, otherwise they would not borrow on these terms. They are unemployed and will not be employed for an undetermined period, possibly years. They are more likely than not to be too young to have any real work history.

Obviously they are different from the long term unemployed, disabled or veterans, but neither was I claiming that.

How much does a year of tuition and expenses cost, does your 1k-3k line of credit cover that?

  Where did you even get the 15% APR from?

A $10,000 loan with a total repayable of $25,000 over 15 years would have an APR of 15% and a monthly payment of $140 [1]

  It's also not 15 years. The term maxes out at less
  than 10 years for English majors.

If your total repayable is 250%, having the term be shorter means the APR is higher †. 22.3% APR for 10 years, in fact [2]

Paying back 250% over 8.5 years? That'll be a 26.2% APR [3]

So that 250% payback limit only kicks in if you've got a pretty raw deal.

[1] https://www.wolframalpha.com/input/?i=$10000+loan+over+15+ye...

[2] https://www.wolframalpha.com/input/?i=$10000+loan+over+10+ye...

[3] https://www.wolframalpha.com/input/?i=$10000+loan+over+8.5+y...

† Of course, one could argue APR is a poor measure for precisely this reason.

The other consideration is that it makes investors incentivized to get you to succeed (at least as far as salary is concerned). That could be a huge advantage if you manage to get the right investors.

Of course I also wonder if it's only a matter of time before a short market emerges - which it will - if investors need to hedge against a recession or something that would not be covered by traditional insurance products.

Well my background is engineering and they're are some nice quite schemes in the UK where they'll sponsor you during university. It works like this: They give you cash towards tuition fees and living expenses. In return you pick some pre-approved courses (relevant to their industry) do an internship over the summer each year, and then they have the option to employ you after you graduate (they can reject you, but if you reject them you repay something towards the scholarship). That sounds much more sensible - but it's not a private equity concept, it's a HR recruitment strategy.

When suggesting trying to solve the problem, I'd first consider what caused the problem. It obviously was not always this way. The stories of people in the 50s and 60s working their way through college with a part time job and then graduating not only not in debt but even with a little bit set aside for a down payment on their first home are not just stories. That was a real thing.

So what happened? We decided that it would be a good thing if anybody could go to school without having to pay for it immediately. It's a pretty well intended motivation. And so how did we do this? We tried to solve it through regulations. The idea was pretty straight forward. To help ensure anybody could afford to go to college the government would give loans unconditionally, aside from financial need. To try to ensure people wouldn't just take the money and squander it, the law was adjusted to prevent these loans from being able to be dismissed in bankruptcy.

And indeed college attendance shot up after these laws were passed. But this did two things. It sharply increased the demand for post-secondary education, and it also increased the supply of money available to pay for it. Predictably costs started to gradually rise. And so as this happened, it began to be that government loans alone were no longer sufficient to ensure everybody could go to college without having to immediately pay for it. And so we now did the exact same thing with private loans - they could no longer be dismissed, which meant that from a lender's perspective, giving a loan was practically free money.

And we've seen what happened here already. Costs skyrocketed since there was now an effectively unlimited amount of money that students could borrow. The only reason costs stopped accelerating as fast is because we reached 'peak college' in 2010-2011 with enrollment figures with enrollment continuing to decline since then in spite of an increasing population.

----

The point I'm making with this is that the one and only reason we're in this situation is because of well intended regulations. It's easy to say just "regulate out of existence exploitative student loan conditions" but things like this are far easier to say than do. For instance, as you make loans less profitable for lenders, they end up becoming more selective on who they lend to. In turn we end up going back to where we started where college is no longer something for everybody. And in my opinion this is probably the right direction, but at the same time I think many people would disagree with this. If you happen to be one of these people then you end up in this tough situation of trying to create a system where lenders can/will lend to people who they probably should not be lending to. Getting a degree in underwater basket weaving isn't going to likely lead to a life such that one could repay years of debts taken on to obtain such a degree, even if the cost of education was relatively "affordable."

Just make student loans dischargable in bankruptcy again, problem solved.

Well, one problem solved, but likely creating (or restoring) others. Their non-dischargable status helps keep rates low(er) and allow folks who'd never qualify for a $100k loan otherwise get a degree.

If we're gonna require a bachelors degree to work at McDonalds, it's probably time to treat undergraduate education like K-12; as an entirely publicly funded endeavour.

Perhaps 100k prices are propped up by low interest loans.

Very possibly! Another reason to expand the public K-12 system to undergraduate level.

The problem is, it also allows folks who would never qualify for a 100k loan otherwise get 100K into debt.

I read an article about how artists are struggling in the high cost San Francisco Bay Area (sorry no link, because it was really an eye-opening article). The article did mention student loans, but focused mainly on gentrification brought about by high tech.

However, they did profiles of various struggling artists, and I was frankly stunned by the debt levels. People with fine and performing arts degrees frequently had student debt levels of $70,000-$90,000. Holy crap.

Is it a good thing that we've created a non-dischargeable, federally guaranteed loan that allows people to go $90k in hock for a degree that they wouldn't otherwise be able to get?

I was very intrigued when I learned that libertarians often look askance on weakening bankruptcy laws. I always figured they were a "that's the bargain you made" soft of crowd. What I learned is that libertarians aren't especially keen on lending (pun intended) the government's monopoly on physical force in service as a collection agency for people who make stupid loans. I'd say that making a $90,000 loan to someone so they can (channeling David Sedaris here) take photographs of rotting produce spilling out of garbage cans is the height of stupidity.

Like, if you make that loan, don't come crying to me. We already have a fairly punitive bankruptcy system, but we are not interested in marshaling the power of government sponsored men with guns to pursue foolish borrowers who don't pay foolish debts to the ends of the earth so that foolish lenders can get their money back. That, to quote pornstache from orange is the new black, "sounds like a whole lot of your problem".

If you don't think ordinary bankruptcy, along with credit and a history of repaying debts, is enough to incentivize repayment, seriously, don't make the loan.

> the government's monopoly on physical force in service as a collection agency for people who make stupid loans

> the power of government sponsored men with guns to pursue foolish borrowers

please correct me if I'm wrong, but I belive tax evasion is the only debt-related (but still requiring a criminal intent to avoid paying) situation that will result in arrest. If you don't pay your student loans, even gov't backed ones, it will be a thorn in your side forever and result in civil actions, but I don't believe you can be arrested or criminally charged for not paying.

Good point. If I'm going to discuss use of government force, I should distinguish between civil and criminal action taken on the part of the government.

This discussion does take me past my knowledge boundaries, though I believe failure to pay child support can also be "criminal". The main reason I'm not confident (and used quotes) in what I'm saying here is that there's a difference between criminalizing failure to pay a debt itself, and criminalizing various kinds of fraud that go into hiding money that would otherwise be garnished by court order. This difference can be complicated legally and I just don't know enough about it to have a meaningful discussion.

Seizing someone's assets in response to a failure to pay debt does eventually require law enforcement, so I do stand behind my claim that government force is ultimately to collect money based on foolish lending and borrowing practices, under draconian non dischargeable conditions.

Are federally backed student loaners allowed to reject financing based on field of study?

>it's probably time to treat undergraduate education like K-12; as an entirely publicly funded endeavour.

Perhaps the issue is how we already treated K-12 education such that having a high school diploma has such low value now.

> 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:

How is "regulation" the answer? Private student loans are effectively dead since Obama. Over 92% of student loan debt is owed to the federal government as the lender.

> 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 crucial difference is that only borrowers who end up making a high income will pay that high APR. People who end up with lower incomes pay less. That's a perfectly reasonable arrangement.

15%? You might wanna do the math again dude.

Also the entire point of an equity like arrangement is that the investor gets a larger fraction of the upside and in exchange for agreeing to eat the downside if the investment doesn’t work out. Comparing it to the APR of a normal student loan misses the point entirely. With a regular loan you have to pay the same amount whether you’re making minimum wage or 200k/year, whereas with an equity-like arrangement you only have to pay the max amount if you make a lot of money.

I think everyone would have appreciated a correction of his math instead of just pointing out how he was wrong.

The math is excluding compounding. A simplified look (payment due at end of 15 years) is around 6.3% annually https://www.wolframalpha.com/input/?i=2.5%5E(1%2F15)&assumpt...

The math including payments is a bit more complex and will depend on how much you are paying during the loan term. I.e. if you paid 2.4x on day one and 0.1x the final day looks a lot different from 0.1x on day one and 2.4x the last day due to the time value of money.

>At the age you're agreeing this you are very unlikely to correctly judge your own value.

I think that's the point, isn't it? Even if the student overestimates his potential, investors with more neutral incentives and more broad experience in predicting such outcomes won't.

Lots of startup founders overestimate themselves too; the social purpose of VCs is to make judgments on who can use capital the best. What we have now is like a government agency that gives capital to literally anyone who wants to start a company, promises them riches, and makes them pay half the tab anyway so they end up hugely in debt in addition to wasting the taxpayers' share.

Even then, there is a lot of risk... how many will fallout, not finish or otherwise live in their parent's basement for a portion of the time?

In the end, you're agreeing to a sliding scale based on salary. Those financing are definitely having an interest in your field of study and the duration for completion.

Am 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.

It is a terrible deal. Lambda School’s stipend programme (places limited) pays students $2,000 a month for the nine months of their job training, while they get trained 40 hours a week and that includes interview prep and placement and job search help that makes university careers offices look like they’re going through the motions, not trying to get the students a job.

And after paying students $18,000 and spending nine months getting them job ready and helping them find a job they only have to pay back

> Upon completion of the program, students will pay 10% of their salary for a five year period once they're making at least $50,000 per year. The max possible payment is capped at $50,000.

https://lambdaschool.com/stipend/

Or if you don’t get the stipend

> There are no up-front costs required to attend Lambda School; we only get paid when you do. Once you’re earning at least $50k per year you’ll pay back 17% of your income for the first two years.

> Total tuition possible is capped at a maximum of $30k, so no matter how much you’re getting paid the most you could possibly pay is $30k.

https://lambdaschool.com/about/

This seems pretty amazing. If anyone who's gone through this program sees this, what's the catch/is there a catch? Seems almost too good to be true.

Do they also get a payment from the employers (like a staffing agency would?)

They're a YC company. I've seen their students on Twitter talking about how it transformed their lives.

I think it's just the first salvo in a disruption that's been waiting to happen for a while.

Just went to apply, but seems they shut down the stipend applications for now because of overwhelming interest.

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 ».

I think this analysis is missing the main point of this kind of agreement, and that is that in the worst case scenario -- the graduate can't find employment, or income can't support the student loan payments -- this agreement should be better than straight loans. From another article [1]: "At Messiah College, students who opt for the school's ISA will pay between 3 and 3.5 percent of their future income for a set period of time. Payments are waived if a graduate's salary drops below $25,000 a year." (Of course, I don't know if this example is representative of all of these agreements)

On one hand, I could see this working for students going for degrees with less job certainty than comp sci. But on the other hand, this does seem like treating a symptom rather than the causes, like we're encouraging too many people to go for degrees that don't lead to gainful employment or self-sufficiency.

[1] https://www.usnews.com/education/best-colleges/paying-for-co...

Make the college free and provide students with a living stipend. Return higher education subsidies (and tax brackets) to their 1950s levels. Join the rest of the developed world.

And allow for students to file for bankruptcy on their student loans. That will force colleges to slash their insane budgets and stop building luxury dorms, new stadiums, and lay off the countless and unnecessary admins.

Salaries for adjunct professors teaching the classes cannot get any lower, so the quality of education could remain about the same

We could even cancel a trillion dollar fighter jet or two.

Your proposal is unworkable because virtually everyone graduates from college with close to zero assets. No matter what someone's ability to repay their loans were, they would have a huge incentive to declare bankruptcy on the day they graduate to discharge the debt.

This is the natural fix. People then don't get the loans they can't afford. There is no limiters in place for a liberal arts major taking out 100k loans.

The future is in income sharing agreements. Let the market and investors decide if they can be paid back.

If college loans could be discharged via bankruptcy it wouldn't just be liberal arts majors with 100k loans who did it, EVERYONE would. Even people graduating and taking high paying jobs who could easily pay back the loans.

Saying that college loans should be dischargeable is basically saying that student loans shouldn't exist (which is a fine point of view, but people should be clear on what their position is).

You can't have a loan at high APR and then not have it be dischargeable. It's either a special type, but at low interest, or alternatively, high interest but normal.

I like the way this girl did it. Great deal and she was smart about it.

No, no, no. Before the seventies student loans could be discharged and less than 1% of lawyers and doctors discharged them through bankruptcy. In general these loans were paid back.

Second point. Saying a loan should be dischargeable does not mean the loan shouldn't exist. It is a cost the lender has to assume. And before you point out that this will be inflicted upon the borrower in the form of higher interest, I have my doubts. The bearer of an additional transactional cost depends on mostly on elasticity, but basically there is so much profit in student loans right now the lenders will just make a lot less money, and nothing else will change.

Student loans were much much smaller in the era you refer to (before 1976 when the law was changed). Behavior would be much different today with the much larger debts people take on.

Tuition was much much smaller in that era too.

If the point you are trying to make is:

  1) loans should be dischargeable via bankruptcy so that
  2) lenders refuse to make such large loans so that
  3) tuitions are forced down

Then I think that's a perfectly fine point of view (as I already said above). It's just important to be clear about it and not simply say that loans should be dischargeable with the expectation that everything else will stay more-or-less the same.

Making this change would have an enormous impact on how higher education in the US functions.

Because it wasn't being inflated by billions of dollars of non-dischargable loans.

The problem is the same as companies. Admins won't get slashed, but educators will. Then in many months to years later they wonder why they are on a sinking ship and fire more workers.

So let those institutions fail, or come precariously close. The hole is dug. Getting out will not be fun but we at least need to put down the shovel.

Absolutely not, at least not without making college much more difficult. Otherwise it is just subsidizing adult daycare.

Many people do not belong in college and learn next to nothing, but go because they're shoo'ed along into it and the universities are in on the joke, and in on the money-making, and undergoing a drastic reduction of standards as a result.

Some data on just how bad higher ed is getting, from 2017: https://medium.com/@simon.sarris/higher-education-erodes-a7c...

Most people are (somewhat) stupid in their early 20s. I don't disagree that not everyone belongs in university, however, most people don't realise that until it is too late and are already in debt.

Free higher education works well in the European countries that offer it.

What better investment could a society make than allow someone to pursue a field they are passionate about, and letting them start life with a clean slate? I'm by no means a socialist, but I think university should mostly be free.

The only thing (student) debt does is tie someone down. To a lifestyle or employer that they actually should have no loyalty to.

Tax brackets don't need to rise, resources just need to be moved from alternative things (i.e. military spending).

>Free higher education works well in the European countries that offer it

It depends what you're looking at. I think it hurts local communities by exporting all the young talent and gets people plugged into the white collar, global economy.

Don't get me wrong, I enjoy what I do, but I think a lot of the time in college could have been better spent learning how to build houses, make furniture, grow food, etc.

If the government is going to pay for it I would like it to be a better resource for enriching the nation, not just a tool for generating more wealth.

> grow food

Then go do a degree on agro engineering ?

...That happens in the USA anyways.

Are there statistics that compare open admissions and selective schools?

(If performance at an identifiable subset of schools is better, then it's more that spending resources on the other schools is questionable than it is that higher education is in a crisis)

Look at the income distribution of new attorneys. It's very easy to get massive amounts of loans for the countless law schools out there but significantly harder to get a decent job as an attorney unless you go to a top 14 school.

Median salaries pool are much higher at the top yet tuition is really similar across all schools.

This is true with undergraduate programs as well. Median starting salary after graduation at University of Florida is 52k. FIU and UCF, both a few hours away with similar programs? 46k.

University of Houston? 53k. Rice University a few miles away? 64k.

I've named schools that are all pretty good...the story gets much worse with private universities that are not selective. There are always people who do fantastic regardless of which school they go to but in aggregate schools matter a lot.

1: Make college much more difficult. 2: Allow people to enter it and fail. People need to be made aware that just because they passed their undergraduate work, they really aren't as smart as they think they are.

Many people also do not belong in an Engineering program, and that's why the 101 classes are designed to weed people out. That system already exists in higher education. At my (liberal arts) school, we have a two-strike policy. Strike 1 is when you have a sub 2.0 GPA in a semester; that gets you an academic suspension for 1 semester. You can rejoin only if you retake similar courses elsewhere and meet a minimum grade requirement.

If you are allowed to re-enroll, you have 1 strike left. Another sub-2.0 GPA and you're gone.

If the US brought such a generation-transforming policy like this to the table, the easiest part of it would be to set that minimum standard across all participating schools. Most likely already have something close to this in place now.

Anyone with a pulse can get a 3.0 GPA in college. Due to grade inflation a "C" has become a B. A 2.0 GPA in college is basically straight Fs. In order to average less than a 2.0 in college I would imagine you would have to not show up for your exams and refuse to do any assignments.

That's just not true. Have you ever taken organic chemistry, electromagnetics, or differential equations? They're incredibly hard courses, no matter how you slice it, and I'm just speaking from experience at a low-to-mid-level school. The entry-level computer science course at CMU (15-112) supposedly takes around 40 hours per week to complete homework for. Courses on the pre-med track will have pretty unforgiving curves too.

Agreed. College has become just another high-priced consumer good. And universities are happy to act just like day care if it means more happy, paying customers.

What do you mean by "the college"? Community colleges are already affordable. Other institutions only charge that much because of price inflation caused by reckless lending.

> Join the rest of the developed world.

Let me tell you about the situation in Germany with its "free" universities: First of all, there's a three-tier school system with the lowest tier barred from higher education altogether, the middle tier requiring further schooling to access second-rate colleges only and only the high tier allowing university access. Usually, children are separated into these tiers by their teachers, at the end of primary school. While it's technically possible get back on the higher track when they're 16 or so, it is rare. Parental income/education and race is a huge predictor on which bucket a child ends up.

So let's say you were a "good child" and are allowed to the universities, prepare for long waiting times (years) unless you have a near-perfect grade average, in case you want to study something "popular" like medicine, business administration or law. Don't expect to get a seat at one of those crowded auditoriums, prepare to sit on the stairs. Also prepare to be "weeded out" early, especially in the technical fields. Fail a test in a course three times and you will not only be thrown out of your degree program, you are permanently barred from getting any degree that has that course in it. Failed your law degree? Maybe try computer science then!

Okay, let's say you went through all those filters, you finally get a degree. If you're got one of those "popular" degrees, it turns out that job competition is actually quite tough, because far more people have a degree than what the job market actually can absorb. It's still better than in Spain, Italy, Greece etc, where degrees are handed out like candy but actual jobs are as rare as gemstones.

Bottom Line: "Free College" just produces over-education, because most people choose popular degrees beyond what the market actually needs. With ISAs, at least there's an incentive to only support those degrees that are actually in-demand.

How would you get back on track if you were lumped into the "bottom third" after primary school? That seems far too early to make judgement calls about someones future, however I am not a child development expert by any means. One major problem with this is immigration. If a child moves to Germany at age 10 from and didn't know any German before the move, I doubt he would be stand a fair chance in this system.

Most of the rest of the developed world. Seems to be a common situation where I find myself reminding Americans that their bad ideas about government have spread to the UK. Higher education costs in the UK are rapidly spiralling.

I 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.

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.

GP saying that it should be offered by the university because then if the university fails to produce a population of students that can make money in the job market, they will suffer.

It's an alignment of incentives much like how some people say colleges should be penalized or on the hook for having a high percentage of students that default on student loans. It would supposedly incentivize schools not to just charge students $300k for an education that gets does not prepare them for the job market.

Personally I think over-aligning these incentives and making college into a machine to make you a profitable worker sounds brutally dystopian, but something has to change about the current world.

Equity-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.

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.

All that stuff is funded with borrowing, not taxes.

How do you think the loans get paid back, exactly? It's funded with borrowing because it makes no sense to take in enough tax revenues to build something in a single year when it's going to get used for twenty.

How are the loans paid back? Easy, more borrowing!

Our roads and bridges are in shambles, while our universities are the best in the world.

Is that because millionaires are prepared to give large donations to universities (especially if their kids get a place at the university in return), while they're not so generous when it comes to funding roads and bridges which are used by poor people?

It might be because most people here are software engineers.

If a person's new grad salary is high enough to pay off student loans inside of 2 years, then this arrangement is a lot worse financially than a simple student loan. The job market for CS, also makes it so, that a loan is pretty low risk. a half-decent job is nearly guaranteed.

Flip the major to something with a lot more income insecurity, and these schemes make sense.

> Vemo Education, which vets students at Purdue and a handful of other schools on behalf of potential investors.

This statement does worry me though. It seems like they would only invest in a candidate if they were already on their path to success. These candidates were probably never at risk of not paying their student loans in the first place. I wonder if they expanded their pool to more risk prone students, would such an investment system be sustainable at all ?

There’s lots of things to reasonably debate about this. This is already an accepted practice for coding boot camps like AppAcademy, which I attended. At the time I couldn’t get a good job and was running out of savings. I was an adult cleaning golf clubs with high school students. Couldn’t get anyone to even look at my resume. AppAcademy’s application was purely merit based, they just wanted to know you could solve problems and think. After the program you pay 15% if your income for the first year, if you could get a job that paid over 50K a year.

I got in. I remember I was telling some millionaire member of the club what I would be doing and he told me that he thought that was illegal and they were ripping me off. I genuinely liked most of the members, but I really wanted to tell that guy some very rude things.

It changed my life. By the next spring I had a great job I loved that was paying me way way more than the golfing club. I had to pay 30% of my first 6 months instead of 15% over the full year, which is tough after taxes. Take home pay was like 45% of my paycheck. But even during that first 6 months I was making way more than I would have otherwise. I’d do it again in a heartbeat.

Bottom line, I got a chance I wouldn’t have gotten otherwise. There’s plenty of ways to take advantage of desperate people. The term could have been longer, the rate higher. It could turn into a type of slavery. But if these things are limited in some way they can be a good thing. Especially if they time out, and are subject to you actually being paid. Then they are better than most other loans, and the people who you owe have interests that are slightly more aligned with yours.

That program has changed a bit since I went through. Also, I think the biggest drawback was I was expecting them to really help me get a job, but it was more throw us all out there and see who sticks. So, probably much less ideal in fields without the same insatiable demand for workers.

Any instrument can be made favorable. You can calculate out expected values. Sounds like yours was a reasonable deal.

But... assuming they don’t set prices using things other than degree, and that they’re priced to be on average equally profitable with an equivalent loan, you’ll be better off getting this arrangement if you expect to earn less than your average peers, and worse off if you expect to earn more. It’s basically a case of moral hazard. Long term you would expect people with less fiscally ambitious goals to pursue this (e.g. those who want to do more charitable, less fiscally rewarding careers) which means the average rate of return would need to be more punishing than traditional loans.

Mostly this just seems ripe for abuse against the loan providers to me, and that the terms will be made very unfair to compensate.

I'm curious: how much was AppAcademy was responsible for you getting a job?

What do you think your odds would have been if, e.g. you did a coursera track or followed some online tutorials to build your first app instead?

They didn’t help much at all, but the program was still new. Their support might be better now, not sure. I do think taking the program highly highly increased my chance of employment. I would not have made the right choices about what to take, my pace would have been much slower, and my self confidence for actually applying for jobs would have been way less. I am confident about this because I was taking Coursera courses and online tutorials before the AppAcademy program. Coursera is awesome and I learned some great stuff. I also realized that I was good at programming, which gave me the confidence to apply to AppAcademy. But AppAcademy was truly a boot camp, very intense, and pushed me through everything I needed to get a job. And I was also contractually obligated to at least try to get a job.

Oh, hey. Somebody just reinvented indentured servitude.

https://en.wikipedia.org/wiki/Indentured_servitude

Good job.

Excepting that they aren't able to 'sell' your labor to a third party, nor are you expected to work for them after graduation.

It's a financial instrument, so it'll probably be bought and sold at some point. Some investors will want to increase their risk, and others will want to decrease it.

Upvoted you because you are correct, but the trick with indentured servitude was that they could sell where you work to a third party, and that in the meantime you had to work for them and no one else. That's what made it just another kind of slavery - the removal of freedom of association.

Indentured servitude requires someone to work for a particular employer for a fixed period of time. ISAs do not do this.

Words have meanings. You don't get to just ignore them to make an emotional point.

I think the parent poster might have meant sharecropping. But the point is still valid.

It's not that either.

Not quite. You can find it if you're looking for it, but I've known and heard of some companies helping out with student payment programs or scholarships under the pretense that you will work for them at an agreed upon salary, albeit a bit lower than standard.

The initial case in the article suggests something similar where investors will "invest" in a student and bank on a successful career with repayments, similar to a student loan. I can't see this as being a negative that Indentured Servitude was.

The notion that paying back a loan based on percentage of money earned is indentured servitude seems to skirt very close to the libertarian memes that taxation is theft/indentured servitude.

I wonder if premiums are higher for women due to increased likelihood of just becoming a housewife and providing no income?

Correct me if I’m wrong but the anecdote in the front is also a much worse deal than the table later on. 279/month = 3,348/year. Thats 6.7% of her 50k salary, which is before tax to begin with.

Tons of other loopholes I’m curious about. Like salary vs other comp?

If they are going to be cynical about it, maybe they should consider household income instead of just personal salary so they can collect from women who, due to higher education, can marry a richer husband than they could without the education.

I don’t think that could be enforceable.

It would also create weird incentives. If two people have these loans, and they get married... would their payments double?

It would be hilariously unenforceable because people would just put off getting married on paper until the term of the payments is up. For couples with highly disparate incomes people already do this to take advantage of income caps for state provided healthcare.

I'm having a hard time thinking of ISAs as much more than a ridiculously high interest loan, especially for those who are self-motivated have a high probability of landing a job after doing X course.

E.g. Lambda school is $20k if you prepay and maxes out at $30k over 2 years, which is effectively a 45% interest loan. Even if you didn't have the cash (or didn't want to fork out) the cash, a typical loan taken out today will have a single digit interest rate.

Personally I'm completely happy with my federal student loan terms for the $20k or so I have left to pay. I stretched it out to 20 years, pay a 5.5% interest rate, the interest rate is deductible you make below a certain income, and barely think of it outside of doing my taxes.

I have plenty of friends who took out student loans, attended college with me, and ended up dropping out and not having lucrative careers for plenty of reasons. They would have been better served by something like this, since they wouldn't ever have to pay it back.

In a way, this is a pessimistic bet, and either way you're a winner. If you don't get a good paying job, you win because you don't have to pay; if you do get a good paying job, you win because you have a good paying job, so it's OK to pay a little more.

The details matter though; if the program is really restrictive and everyone who gets funding ends up with a good paying job, the borrowers are being exploited and there's likely an opportunity gap: people who could have done well with the education, but weren't able to access it because the funders risk model wouldn't let them.

Fitting 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.

Computer Science itself is rife with reinvention of its own concepts, so I don't think wider reading would change much.

Furthermore, banksters aren't coming up with these mortal-debt schemes due to not knowing history or ethics, but because owning people is quite lucrative.

As far as mortal debt schemes go, this actually seems nicer than student loans denominated in straight dollars. But of course it will be nicer to start off - longer term it will probably converge on a similar income siphon as traditional loans, just with a nice bonus payday when one of the subjects makes it big.

Oh come on! Quit it with the hyperbole about indentured servitude. Agreeing to pay a lender a cut of your paycheck is in no form slavery.

Who is reinventing indentured servitude? There is no obligation to work for any particular employer.

The public service student loan forgiveness (and simmilar private programs, although the latter seem uncommon). Is closer to indentured servitude, as you either have to work an eligable job for a particular employer (eg, the government) or face a significant financial cost.

The belief that this kind of knowledge and critical reasoning skills are exclusive to non stem domains is part of the reason non stem has a strained reputation

I can imagine so many bad things happening from this. The first thing that springs to mind are the lawsuits: The term of the ISA in the article is 8.5 years. So you finish that up, and a year, two years after you make tons of money. The bank sues you, accuses you of sandbagging your earnings potential by sitting on a profitable project/idea/etc until after the terms of service. It's securities fraud. That's just to start.

My daughter signed up on an ISA with Kenzie Academy (it's a digital marketing program in Indianapolis). The terms were the school gets a percentage of her earnings over $X and under $Y for two years. If she doesn't make $X, then nothing paid. Contrast that against a $20-$30k in student debt...

Some of the ISAs being done by colleges just look like dressed up student loans in comparison.

Let's scale this up huge, let everyone take part, and have all of society invest in education and reap the rewards. We can call it "public education" and even capture the public externalities of having a well-educated population!

ISAs != tax funded education because the former closely aligns the incentives of the educator with the educated while the latter does not.

>the former closely aligns the incentives of the educator with the educated

Do you think the school cares if you pay them using a federal student loan vs a group of private investors making payments on your behalf?

How does one align the incentives of the school with students any more than the other?

The only alignment of interests the school has with the students is when the student has a rich parent who could be a donor or the student is a super athlete that can measurably impact the school revenue as an unpaid student athlete.

OP wasn't talking about funding the school via federal student loans, but instead via taxes which is why the inequality in my comment said "tax funded" and not "loan funded."

Fine how does tax funded vs loan funded vs private capital funded education align the interests of the school with the students?

The students interest is getting an education, converting that education into employment, and not being indebted. The schools interest is revenue.

The student would be best off with a free tax funded education and no debt, the school is best off with guaranteed federal loans allowing them to charge imaginary tuition rates no one can normally afford but for guaranteed student loans.

Where is the alignment of interests come from with private capital in exchange for future earnings? Students are left indebted (maybe not in debt but indebted) and schools face the reality the private market isn’t willing to pay runaway tuition costs like guaranteed federal loans because private market knows it’s a bad investment (as evidenced by the current amount of outstanding student loans and default rates, nearly 1million defaults a year). Next thing we know the private investors will begin negotiating tuitions on behalf their investments and leaving non- capital backed students footing the bill for the difference (kind of like our messed up healthcare system).

If a student with an ISA doesn't get a good job after graduation, the school gets nothing (or not much).

If the student does get a good job, the school gets paid more.

Thus the school is highly incentivized to make sure that their graduating students are highly employable.

This is very different from the other systems where the school gets paid no matter what happens after graduation.

>If a student with an ISA doesn't get a good job after graduation, the school gets nothing (or not much).

The school isn’t the one making these deals (at least from the example in the article), private investors are entering into these agreements with students.

If the student doesn’t get a job the private investors don’t get paid, whereas the school has already been paid.

The financiers are working in close concert with the university. It's basically a partnership.

If the school doesn't perform, the investors won't keep investing in students going to said school and enrollment drops. It's economics working. It would probably also carry over into fields of study, and length of study with escape hatches.

The investors will only offer the option when they think the combination of the student, the school, and the specific degree program will show a positive return on investment. This means that a school that does not offer the student an education that will enable them to make more money will not be considered as an option by the private investors.

In theory a government agency could do the same, but I think there is enough evidence that investors do a better job of investing their own money than government employees do for investing tax payer money.

Is "make more money" the best criterion we can find for determining what educational paths should be encouraged and supported?

It's bad enough that students are likely to be naturally drawn towards certain career choices - such as advertising technology - because of the generous pay to be found in that sector, rather than because they see an opportunity to make the world a better place. Let's not give educational institutions an added financial incentive to promote the most lucrative courses and careers rather than the most beneficial ones.

>Is "make more money" the best criterion we can find for determining what educational paths should be encouraged and supported?

First, that is quite a different question than the one I was answering. When someone is asked what is the best way to eat an elephant and tries to give an answer, mentioning that people shouldn't eat elephants is a comment better directed at the person asking the original question and not the one answering.

Second, no, but we also have scholarships and such which reduce cost for those deemed having potential that isn't restricted just to making money. It would be unwise to overlook the increase in earning potential being the reason so many college students justify taking on their degree, and it would also be unwise to insist that the college experience is the path for those who want a general purpose education without a specific purpose.

Third, that figuring out how to trick more people into buying something is a more lucrative career than something that advances human society is an indictment of humanity at large. Is colleges promoting beneficial courses (based on what ever definition you go with) over lucrative ones really benefiting society when it leaves the student without the ability to earn money in a society that runs on money?

Well, is investing in a field of study that graduates 5000 students a year, but only has about 50 new jobs in that field available make any sense?

Yes, you should have to be able to make a living at something to convince someone to loan you the money, even on ISA terms.

I agree with you. ISA proponents make two arguments that sort of resonate with me, though. First, incentive alignment is closer with a private structure. This is weak to me because there’s no reason why incentives can’t be aligned in a similar way with, say, an additional tax on students that looks similar to an ISA (big standard deduction, time limited, with a total cap on return).

Second, and more reasonable to me, is that the political climate makes public universal education impossible at the moment so why not pioneer in the private space? I would love to see society invest in citizens, and in fact I would go farther and fully federalize the preK-12 system and ban charters. Such things are just not realistic with a government that can’t even pass a simple budget without fireworks.

> and ban charters.

Why? What's the difference between publicly funded versus publicly funded and operated?

The current incarnation of charter schools are a problem because they can choose who they want to admit with very loose regulations. Anyone who looks like they might be expensive or against whatever their corporate beliefs happen to be are not admitted. Public schools have to take everyone, which means they get the most expensive students (read: special needs and disabled students) while being stripped of revenue that they depend on to help those students.

Federalizing K-12 in the US is a pretty radical proposal but I think it's necessary if we ever want to get out of the inequality quagmire we're in now. Leveling the playing field would mean that no matter where you happen live your kids have access to well funded high quality primary education.

Which state? In Massachusetts all charter school admission is by lottery, with preference given to siblings of existing students and students who reside in the district the charter school is located in.

You’re right, it varies greatly by state. I’m thinking specifically of Michigan.

IIRC in Utah the public schools still receive funding for charter school students.

In either case, why should "easy" students be held back to the level of the "expensive" ones when instead they could go to a tech- or arts-focused charter school and contribute far more back to society?

Leveling the playing field would mean that no matter where you happen live your kids have access to well funded high quality primary education.

This seems...highly unlikely. Instead you will see everything reduced to the lowest common denominator, metal detectors at the doors, prison schools.

The purpose of charter schools is to circumvent equal access provisions and to break teacher unions.

Or to offer programs and incentives that the unions won't agree to such as: longer academic year, longer school day, merit pay, on-call duty, at-home visits, non-traditional facility, non-traditional pedagogy, poor performance termination, etc...

I mean, sort of. Experimentation in things like that is of course possible in private schools, but so are unions. The charter system as currently implemented doesn’t do that, by and large, or if they do it’s a minor aspect. The primary effect is circumventing equal access to make a profit at public school’s expense.

If you looked into it I think you'd find that charter providers do not support having a new separate union for teachers that provides all of these "programs and incentives."

Having worked at charter schools... I can tell you that each state runs their charter program a little differently, but generally teachers at charter schools are not union represented. Each school charter is issued independently of any others and the school design can vary dramatically from one charter to the next, which is actually the point. Some charter schools have long days. Some go year round. Some focus on at-risk youth. Some focus on alternative pedagogy... etc, etc.

> A tax on students

It would take all of about two decades, maybe less, for program spending to spiral out of control. And the only way to solve it would be to expand the tax to non-students.

Would you invest in an ISA for a person that is intending to become a teacher?

Arguably a very important job with high impact, sadly it’s not well paid.

Or how about we give people the voluntary choice to participate, or not participate, in these efforts?

That way those that prefer more expensive forms of education, can be free to do that and pay for it, and those who don't, don't have to do so.

An educated population is a public good. Particularly in a democracy.

Not everyone that is taught at college causes an educated population. Underwater basket weaving - like course cause more harm than good.

Okay, even if we accept the basic logic there uncritically, it's not infinitely good. For example, the 24th year of schooling is not a public good, because there's no plausible argument that the social benefits it provides are greater than the cost. What about the 20th? The 16th? At what point does it cease to be a public good?

(Hint, we have some attempts to answer this question, and it suggests that college is a private good with a value that is mostly in signaling rather than skill acquisition, and casts some doubt on whether high school really meets the criteria)

And watch the value of the college degree follow the trend of a high school diploma!

If we offered free college, how long before we start dropping the standards to earn a degree (for the same reasons we did so with high school diplomas) and have students waste even more of their lives in extremely sub par education environments?

I have to assume this is sarcasm but if not: you’re about 30 years late.

Who cares if we drop the standards to earn a degree? In a theoretical world where high-quality public education is freely available, who cares about earning a degree at all?

The most successful and competent people who I have ever worked with don't share much in the way of education, but they all feel some sort of passion and drive for what they do. They see potential in their work and think about it all the time, so they are good at it and they have a lot of useful insights.

"Education" shouldn't be a simple signal that you have enough diligence and financial werewithal to consistently show up in the same place over the course of 4 years. It should be a lifelong process of both asking and informing people what they are capable of.

Personally, I think the all-or-nothing approach of primary school->secondary school->career->grave is a huge waste of people. I think we just need to figure out how to provide adults with the time and safety to uproot their lives for a couple of years at a time.

People will care about earning a degree because the rat race never ends. When you devalue university degrees, people will start earning degrees just because they can and because clueless employers grasp at any straw they can use to differentiate between applicants. That's how it becomes impossible to get a half-decent job without a college degree.

mba anyone?

That’s pretty much the current state of affair. People go to college because that’s what you do after high school. Ideally at an Ivy League because it looks much better. Then you go to grad school because that’s what you do after undergrad...

It anything this would increase the standards... this type of thing comes down to convincing someone that you are able to complete said goals, and that the degree you are working towards and the school itself is worth it.

Education has value independent of any increase in earning potential. Society benefits as members learn a wide range of things. I believe society would be better if there were periods of time throughout ones life to go back to school and learn without worrying that it is useful, practical or will lead to higher salary. Imagine in every member of society learned about John Rawls theory of justice as fairness, or how to weld and make beautiful art or fix their house. Sure some people seek this out but imagine if we removed the instinct to value education or a degree only on its financial impact. Imagine if we removed financial pressure.

>Education has value independent of any increase in earning potential.

And it can be gained independent of college and independent of educating oneself for a career as well. It is easy for someone going to college to get both a degree in something that will allow them financial freedom in the future and to learn all sorts of topics that employers would not care about.

Most types of education can be obtained outside of a formal setting, but not everyone is self motivated; some benefit from structure and accountability. Similarly, the interaction with other students and expert professors is unique and shouldn’t be ignored. Alumni networks are powerful things.

Universal college education is still a great idea, even if it lowers the value of an individuals degree across the broader society. A world where more people can make meaningful contributions to the development of new technologies, providing healthcare, educate others, and contribute to other areas of human understanding the better the world will be for everyone (short of issues relating to capitalism itself).

The key piece of this is that should any universal college education legislation pass, it needs to be designed in such a way that we don't make the focus of college be the same as high school where the goal is to make sure everyone can pass. And in turn, include a very rigorous minimum education standard in order for an institution to provide government funded education.

You are assuming that higher education institutions still have an incentive to actually make people able to make "meaningful contributions to the development of new technologies" and all that good stuff after a college degree becomes a requirement to signal to the rest of society that you're not useless.

>Universal college education is still a great idea, even if it lowers the value of an individuals degree across the broader society.

This is assuming the actual standards for a degree aren't lowered to achieve the goal of universal college education. That's why I bring up high school diplomas where the standards to graduate were lowered to increase the percentage of people with a degree. The end result was damage done to the degree and to the education that is needed for the degree. See the modern day nightmare of standardized testing preparation instead of education.

Why do you think this hasn't happened in Europe?

I know a German who avoided work by staying in university into her 40s. This was only possible because it was free to her. Despite 20+ years of university education, she managed to get a low level job.

I don't know how prevalent this is in Europe.

But it's a general economic fact that people don't value what they get for free. They need to have "skin in the game", so to speak.

If you want evidence, look at how people treat rental cars vs their own. Or how they treat those ride share bikes. Or how they treat public bathrooms. Etc.

People may not value it but can I argue that society improves as a result?

I personally treat rental cars, bikes and public bathrooms the same as anyone else. I don’t trash them but don’t clean them meticulously. I still value their presence.

I agree with your sentiment, but understand his as well. I think it's mostly a cultural problem rather than some instinctual problem with humanity. Japan has a culture of cleanliness as far as I can tell. In my area, however, a handful practices seem to persist because of the fun derived from exploiting the commons.

Many times I hear the phrase "what do you care, it's a rental!" People who buy used cars tend to avoid ex-rentals.

Once a group I was in was staying in a hotel. We were all heading out to dinner, and one person came out of her room, leaving the light on. I asked why she didn't turn out the light. She replied: "why should I? I'm not paying the electric bill."

Apparently that's pretty common, as most hotel rooms I stay in these days require you to insert your room key into a device that enables turning on the lights, so they turned off when you leave.

This is so frustrating because it describes my family...

They understand empathy and the concept of a carbon footprint, but don't consider them when it comes to decision making. In my experience, it is as if it isn't a variable in the equation.

I attended public high school, where everything was free, and a private college, where everyone paid to attend. What a difference.

High school was populated by people "doing their time", who wanted to get by doing as little as possible, thought it was cool to be disruptive, cut classes, etc. They definitely dragged the whole thing down for the others.

College was different. People paid to be there, the work was hard, people wanted to be there and would take the hard classes to get their money's worth. There weren't any disruptive students.

What a difference.

You're also describing the difference between children and adults. In fact, I think you'll find that the older the college students the less the disruption.

When I was a boy I'd not take care of my shoes, wearing them out very quickly. My father applied a simple solution. He said if I wanted new shoes, I had to earn the money to pay for them.

My shoes started lasting several times longer. I was still a child.

My dad didn't think of this himself. The Army had the same problem with combat boots, and solved it by having the GIs pay for their boots.

Money is not the only way to pay. In fact, it is often the easiest way to pay.

I studied in a university in a country where you have a dual-track system - either you get in for free, but have to pass a far more rigorous exam (since you're competing against everybody else who is trying to get in for free), or you pay and get your spot. The people who paid their way in - or rather, whose parents paid their way in - tended to do that "doing their time" thing you described. The people who were studying for free were far more determined to make all the efforts that they had to put into passing the entry exam worthwhile.

I don't have data for the whole of Europe, but bachelor degrees in Germany are much less common than in my country despite the fact that higher education there is much more accessible. This seems to correlate to the fact that Germany also has a very well-established system of vocational schools and university there is seen as a way of becoming a researcher or for certain high-skill careers, not a requirement for being treated as a functional human being (which is what I see higher education becoming in the US and my country both).

I can't speak for all of Europe, but Germany avoids having university degrees becoming a mere piece of paper useful only for signaling by having alternate paths to a fulfilling career.

My understanding is that most European colleges have entrance exams and only a fraction of people pass. And since entrance is based purely on exams, college admission is a much stronger signal than in the US.

I think it is the other way round.

You can easily enroll in any university you like, but can't advance in that major if held back in the rather difficult weed-out classes.

Hasn't it? I'm all for public education, but at least in Poland, it seems that almost any half-decent job expects you to have education past high-school level.

Poland is a pathological case, because where communism fell we inherited one thing from it: obligatory two-year service in the army for all men of age 19 (except those with health issues, obviously). And one of the only few reliable ways to avoid it was to go to university.

The result was that literaly thousands of bullshit private universities were created not to educate you, but to help you avoid military. This also created additional income source for university professors, who earn pretty shitty salary in Poland.

Now, obligatory military service was abolished few years ago, but the trend of everyone going to college after high school remained.

Hadn't thought of that, thanks.

I was born and lived in an "university town", and I remember military recruiters in my town were absolutely expecting that everyone's going to university, and they defaulted to giving people the status of "not suitable for service during peace time" for any reason whatsoever. I heard that in smaller towns, on the other hand, it was much more difficult to avoid getting pushed into service.

Due to significant political and social differences. For example, why has the value of a high school diploma decreased more in the US than in Europe? Why does the US have more of a problem with for-profit colleges? Why does the US have such a rapidly rising cost of college (regardless if the cost is paid by students or by the state)?

If I had to give a single root cause, it would be how we vote (the US system leads to a far stronger polarized two party system than Europe has).

I'm highly skeptical that college degrees, or higher education follows a zero sum model, doubly so if you expand the value accounting to society at large.

"how long before we start dropping the standards to earn a degree" I'd say the steepest decline began about 10 years ago. We have people receiving graduate degrees who are barely functionally literate, let alone know anything of value.

I think it's the other way. If you pay a lot of money then you sort of can expect to get a degree at the end. When I went to school in Germany they made a lot of effort to weed out people. If it's for free you can't really complain but if you already have paid $100000 it's harder for the school to justify people failing the course.

Public funding sources can be tied to students and their success as well. If failing students means lower ratings and enrollment for the school, which in turn means lower funding levels, the school has just as much incentive to keep students advancing.

Instead, let's have only the rich kids have an education, that sounds like a great idea.

It's absolutely NOT free, and may not be without strings... such as your area of study (major), how far you want to go. Demonstrated competency going in, etc.

In this case, the investor(s) could look at the potential value/income for the person going in. If you want to focus on an area that has limited job prospects and low salary, then you're unlikely to get funding.

Honest question. Instead of institutions declaring that so and so is certified in a field, why not let employers make these decisions based on the work that the student has produced. Particularly for the STEM fields, let each student publish their thesis or project work in a publicly available repo and rather than evaluate someone on GPA or degree, evaluate them on whether their domain knowledge is good enough.

Honestly and fairly evaluating an individual requires more resources than checking the value of a single bit (hasDegree==1). Society has attempted to address this scaling problem with a system of _degrees_ and/or _certifications_.

That would be great. I've seen too many people coast off of prestigious degrees, while other hardworking people struggle because they do not have the same access to quality education.

Note, that OP isn't suggesting that the educational process be centralized. Just the funding. Unlike K-12 public schools, universities will still maintain full autonomy on how they want to go about teaching or structuring curriculum.

European countries offer free education, and their quality is still great.

> let everyone take part

Surely you mean “force everyone to take part”.

> and have all of society invest in education

I would prefer you not “have” me or other people do things against my or their will.

Interesting... I would prefer you not use the roads, schools, courts, plumbing, utilities, waste management, firefighting, ... that our taxes pay for. Unfortunately (fortunately?) I'm forced to tolerate you against my will.

I guess we all have to make sacrifices

This is such revolutionary thinking!

Income sharing applied to four year degrees is almost always more expensive than federally subsidized loans (which taxpayers still make money on...)

Plugging in numbers for my own degree (CS) and loan amount shows I would have paid $14k in "interest" for my $35k loans over 88 months, which is roughly double what I actually paid over 120 months.

Are these obligations dischargable in bankruptcy? It seems to fit into the discharge exception at 11 USC 523(a)(8)(A)(ii) . https://www.law.cornell.edu/uscode/text/11/523

This is a little too much like The Unincorporated Man for my comfort.

https://en.wikipedia.org/wiki/The_Unincorporated_Man

This is literally the exact first thing I thought about when I read the article. I think the book gets a bit too ideological, but the prospect of buying a stake in someone's future earnings stuck with me as a pernicious side door into indentured servitude. At the times I shrugged it off as "well, it won't happen" yet here we are 10 years later...

It’s interesting they talk about it as something different than a loan. It’s just a loan with good terms, right?

It seems good to have a flexible pay-back schedule, no late fees, and something that adapts to my situation in case I lose my job.

But the bigger picture is that this kind of thing is allowing tuition to increase. We don’t really need better ways to finance ballooning tuitions as much as we need to figure out how to reduce tuitions and get university funding for people who can’t afford it even with income sharing agreements.

Well, a loan ends after you pay back the principal, this only seems to end after a certain period of time, even if you end up in a great job and having to pay back 3x or 4x the loan.

Whether this is still worth it depends heavily on whether this shows up on your credit reports...

Great point, the terms might not be great at all. I should have said relaxed schedule. Agreed, income sharing might not be worth it. Just another reason we should investigate other ways to pay for education than personal financing, right?

It seems the ones in the article end after you pay off 2.5x the original loan, at least.

When is the state going to fund college for its citizens for the mightiest nation on earth and stop letting Wall Street find innovative ways to rape us under the hood.

Isn't at least part of the problem the exorbitant high cost of college education?

This will cause the price of college to spiral higher and higher, since students can just sign away a larger portion of their future earnings.

I've heard that higher education is free in Germany, even for foreign students. Couldn't we implement a similar model here in USA?

Planet Money did a podcast on this recently:

https://www.npr.org/templates/transcript/transcript.php?stor...

How dystopian, and kids this is how the white collar indentured servitude class come to be. Gave away a Percent for education, another for housing, another for health insurance ;)

How does this correlate to interest rates in the market? I am working on a student loan refinance marketplace and am really looking to make a significant dent in this problem.

Might be practical, but this does feel completely awful and rent-seeking in the worst possible way.

Great.. why don't we just call ourselves the new digital serfs?

Definition:

1. A person in a condition of servitude, required to render services to a lord, commonly attached to the lord's land and transferred with it from one owner to another.

2. A slave.

This is in no way applicable, so just stop.

Being free but indebted is not really as bad as being forced to work someone else's land. I owe my bank a significant sum, but I am able to find work that schedules both a repayment of that debt as well as a nice profit and accumulation of assets for myself on the side. That is not possible under slavery or serfdom. I owe my bank money, but I don't owe them my life, as they cannot require that I pay them back under such an inefficient and disenfranchising mechanism.

Most people would say.. duh..

Isn't this obvious?

I think you missed my point, and took what I wrote too literally, without doing a deeper analysis of what my intention was.

Maybe you need to communicate better instead.

Oh boy, another way to increase the share bubble..

So 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.

Hey 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?

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.

The American society has progressed so far it managed to bring back indentured servitude, what an achievement.

Can you say adverse selection?

What 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.

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