You Can Securitize People Now: Lambda School

"And here’s Ranjan Roy:

The moment Lambda started selling off the contracts, their incentives completely flipped. Their income was then derived from generating ISAs, meaning, the more, the better. Enroll as many students as possible. Of course, if no one ends up getting jobs, investors will eventually stop buying the Lambda ISAs, but that would all happen a long ways down the road.

People are right to be angry that Lambda was selling off the ISAs. It broke their core promise.

I am less offended. Lambda isn’t selling the equity in the students, it is borrowing against it. In the language of securitization, it is selling the senior tranche to investors, but keeping the equity. (Well, 60% of the equity.) Lots of businesses borrow money to fund their operations, and pay back the loan out of the profits of their operations; that is just the normal way to do business, and is functionally what is going on here. Investors advance Lambda some money so it can pay for its programs, it collects money from students if they get good jobs, it uses the money it collects to pay back the loan, and if there’s money left over—if Lambda does a good job—then it makes a profit."

https://themargins.substack.com/p/the-risk-of-distributing-r...