I am an outsider, but clearly looks to me like they chose to not fight that battle, which was just legal thuggery. Colleges in the U.S. are a racket that make the mafia look like a bunch of amateurs. The Bankruptcy Exception for student loans is one of the most corrupt scams going on in the USA today.
Lambda lied to their students for years about loan dischargeability. They were told to stop by the regulator, so Lambda did. The regulator did nothing to penalize them.
Why is it even in their interest to say that? It's not like them saying it makes it true. And if it were true, it would mean that Lambda is a bigger risk for the student who therefore may be less likely to apply.
Or do you mean Lambda was selling them to banks?
Some people treat this like a bad thing, but it's really pretty basic risk-mitigation and cash-flow stabilization. This is kind of like basic factoring, or "modern" solutions like Pipe (https://www.pipe.com/).
There is an argument to be made that it disaligns Lambda and student incentives ("outcome it doesn't matter because Lambda already got paid") but long term, defaulting students would definitely decrease the sales values of the ISAs.
Part of the argument here is that calling these ISAs non-dischargable would lower the risk to the investor, which would make those ISAs worth significantly more.
I wonder how true this is. Declaring bankruptcy comes at a huge cost. It's not something people do lightly. Most people, if they have the money to pay back the loan, would probably do so. Once they're in that position (presumably with a stable job), they have little incentive to declare bankruptcy.
But that goes hand-in-hand with the aligned outcomes; it's best for Lambda if these people get good jobs afterwards, because they're more likely to pay the ISA in full.
If they don't, they're less likely, the risk is higher, and the ISA is worth less (to the investor).
The potential for bankrupcy is also a risk, which lowers the yield. Removing the risk of bankrupcy heightens it.
We could argue about the magnitute of these risks all day; I'm sure people significantly better at math than I am have done a lot of work here.