How to Build an Income Sharing Agreement Product
moderntreasury.com
moderntreasury.com
(Not saying Incoming Sharing Agreements's are bad, we just have to be careful...)
As a preliminary matter this is false...student loans are dischargable in bankruptcy, they are just treated differently than other debt. However, there is a reason everyone thinks student loans aren't dischargable and the myth persists...
>the incentive structure of "we don't make money unless our education helps you do so" seems like an order of magnitude better than the alternative.
Not when the real alternative is student loan forgiveness and free tuition moving forward. The issue is framing the problem as student loans for life or a financier owning a % of your labor for life, when there are other models.
Seeing as no "mainstream" political party candidate is running on this platform, I think the answer is no. Of course, I would probably say the same of any campaign issue any mainstream candidate is running on due current political climate of our 2 party system.
Whats interesting is if this candidate won the election, perhaps the 2 parties would have no choice but to concede the issue, if for nothing else to realign themselves with their own constituents and win back their votes. Then again maybe we can extend the market saying "the market can remain irrational longer than you can remain solvent" to politics "political parties can remain irrational longer than you can vote."
Private loans, IIRC, are dischargable with a lower standard, but it escapes me what the standard actually is.
I have gotten student loans ($100k+) discharged for clients.
My experience is most people who say student loans are not dischargable have never gone through bankruptcy and have no idea what the process is to discharge regular debts nor student loans. This is true of even some lawyers, who are more than happy to take your fee, but don't know what they are actually doing.
Of course, the constitution is only as powerful as we are willing to follow it -- but I'm pretty comfortable that the slope between people agreeing to pool their income voluntarily and people being forced into servitude isn't all that slippery.
Shares of this nature would be regulated as securities. Which would bring a great many uncomfortable requirements to the table.
Just as a for instance, I'll just point out that corporations have Boards of Directors and shareholder meetings. Both of which potentially determine and direct any future actions the corporation is allowed to take.
Historically, college was an upper class pursuit because the upper classes could afford it. You introduce student loans and then instruments to make them more easily accessible to anyone, you end up with the current debacle.
Part of the cause of the current debacle is the fact that it takes more than the right degree to establish a sufficient income to make traditional student loans make sense. You also need job hunting skills, availability of good paying jobs and a personal situation conducive to working full-time. This means no health crises, unexpected pregnancies or other family problems imposing on your time.
What we've learned is that the bet involved in the current student loan process is a bet that still leaves a lot of lower class people in a situation where college is a bad bet that may just deepen their financial problems and de facto keep them trapped in poverty.
I don't know if this solution is the right solution, but I do think the goals and ideas driving these experiments are healthy impetuses. We need to continue to try to find societal patterns and practices that help lower income people have the opportunity to rise. It's better for society overall.
The tendency for the principle of "them that has, gets" to deepen class divides is one that needs constant push back. Otherwise, it foments bloody revolution.
We already have memes like "Eat the rich" which point to deep resentment and bitterness of the "peasant" classes. You would have to be a fool to think that's not anything to be concerned about.
Now education is just looked at as a way to in debt young people for the rest of their lives. Because 1M people default on their student loans every year and the bubble is on the verge of popping, the parasites are looking to own 10% of every dollar you make to finance your education.
The problem isn't that an API doesn't exist to automatically debit 10% from the people you own, the problem is an education doesn't get you a job anymore, much less a high paying job.
Instead of owning peoples labor via API, why not consider the 1 Presidential candidate who is campaigning to forgive all existing student debt and make college free moving forward by god forbid...taxing the same banks the taxpayers bailed out from bankruptcy just 10 years ago.
My lord, people, this might be a bad idea.
Something's just really wrong about that statement. It saddens me. Didn't we fight a war to put an end to stuff like this?
Also, a president is not going to wave a magic wand and fix this system. If you want to support that candidate, by all means do so, it's one of the habits of healthy hearts and minds in a democracy. Just realize going in what's actually possible and what's political marketing. Fixing this is going to take a lot more work on everyone's part than simply casting a vote.
Finally, the wealthy should pay more. No argument from me on that one. Having said that, there is a game theoretical optimum on how much you should tax each person in a society. We don't want to get carried away with taxing anyone for political reasons. Liberals do that with anything that will disproportionately stick it to bankers, and conservatives have done that with anything that will disproportionately stick it to blacks. (The recent Reductio Ad Absurdum of conservatives demanding that college athletes pay taxes on scholarships is an example I'm guessing you might appreciate of how political targeting can get just a bit ridiculous.)
You're not wrong, but at the same token why are Presidential candidates always speaking about things like: taxes; immigration; same sex marriage; healthcare?
The President doesn't control any of those things, doesn't have those powers...that's all the legislature.
While it may be just marketing for a candidate to say they will forgive existing students loans and provide for free education paid for by taxing the banks on what are currently tax free transactions...if that candidate wins, the 2 political parties will begin listening to voters and do what it takes to win their votes back.
In classical education if you don't get a high paying job it's your problem not the university's because they've already been paid. The whole idea behind this change is to shift some of that risk of un/underemployment to the university. So if the university isn't able to get you the high paying job they promised that's their problem too(b/c they don't get paid).
I don't think that "classical education", in classical education students were able to get part time jobs and pay their own way through school...there we no such things as student loans.
This concept of having to sell off parts of your future productivity at the ripe age of 17-18 is only being conceived because the federal government student loan guarantees and runaway artificial tuition costs supported have already imploded.
Nevertheless, these programs are not paid for/proposed by the universities themselves, but by investors...no matter what the college/university gets paid upfront, and they have no skin in the game.
There just aren't enough jobs that require the qualifications of English literature majors or similar.
Your logic is as follows: if college degree doesn't get a job, then don't go to college.
Your logic breaks down because not going to college isn't going to get you a job either.
Having educated unemployed people is bad yes, but its an infinite improvement on millions of educated unemployed people saddled with debt they will never in their life times be able to pay off.
[0] https://www.forbes.com/sites/alisongriffin/2019/07/18/a-rare...
Yeah, this is a common myth. Student loan payments in the US are limited to 10% of discretionary income for up to 20 years. If you make too little to pay off your loans on the standard 10 year plan you aren't just saddled with the debt forever.
https://studentaid.ed.gov/sa/repay-loans/understand/plans/in...
No, they aren’t. You can choose an income contingent repayment plan that is limited that way, but it's not the default and servicers steer people beat served by those plans away from them in favor of staying on the standard plans and taking deferments.
The current system in the US incentivizes colleges to provide an exclusive "luxury" experience, regardless of cost. Here the incentives are more properly aligned.
In addition, ISAs place a natural cap on college cost. Where cost could previously grow without bound (all loans are backstopped by the federal government), now cost is tied directly to the prevailing wage of the graduate. To the extent that wages signal the needs of the economy at large, I'd assume that ISAs would increase the number of graduates in in-demand fields at the cost of some fringe benefits.
The big losers in this equation are the lesser-paid but still socially valuable professions such as teaching. However, it's unclear to me that these skills could not also be delivered at significantly lower cost (as they were several decades ago).
How do we incentive schools/lenders to fund people who want to study art and literature? Or should we?
Quality educational materials are certainly not more scarce today than they were 50 years ago, or somehow astronomically more expensive today.
Quality educators are not astronomically expensive and costing students more. In fact, educators are being chased from the classroom because we treat professors and teachers as a cost center and have systematically eliminated long-term confidence in career stability by replacing career professors with graduate students and adjuncts.
STEM careers are and likely always will be a solid choice. But liberal arts aren't as bad as pop culture would make them out to be.
Disclosure: I work at Leif
It's not clear to me why the market pull for ISAs has grown so much recently, although I am happy to see it as an alternative to debt. Perhaps it's the increasing student loan debt burden in the US? Perhaps capital markets opening up to ISAs as an investment vehicle as well?
Regardless, it's great to see Modern Treasury build a solution to make ISAs simpler to implement.
The whole reason that student loans are non-dischargeable is that medical students would become doctors, then leave the country for enough time for debt to go away.
Your spouse sets up an LLC, which employs you at minimum wage to be a contract worker or consultant. This already happens in government contracting where small companies have a leg up of they are female, minority, or veteran owned.