Why income share agreements did not work out
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It's basically an extremely high interest loan, combined with bizarro access to banking records. Like for most of these ISAs if you couldn't make the payments, they want it access to your bank account to see that you really couldn't.
You have this really strange setup where if your income increases even marginally, the ISA kicks in. Lambda school, which fortunately also collapsed was notorious for this.
Student loans aren't necessarily bad, they just need harder. Caps. Like federal loans are very reasonable, private ones are not.
Outside of attending medical school or law school, private loans are just a bad idea. On top of that, I think private loans are given out too willy nilly. Anyone can go to a bottom tier law school and take out $200,000 worth of loans.
A good compromise here would be to make private loans fully forgivable, but federal loans are a fantastic deal and help me improve my life.
40k in student loan debt, which is about the max you can take out federally for undergrad, isn't bad.
Anything above 100k can easily be insurmountable, the interest just accumulates way too fast for most people to pay it off.
Then again, I never understood why lambda school needed to be so expensive. You're not running a real school, there's no reason you can't just tell people to take a free class off YouTube, and then have them pay $500 or so to have a project graded. And maybe more adventurous companies would be open to recognizing that project as proof you'd be a good hire.
*pros*:
- zero interest
- whatever hasn't been paid after 5 years, I don't owe
- no payments are due if you don't have a job making over $50k
*cons*:
- tuition was definitely overpriced and you end up having to pay 150% of the principal loan (assuming you have a high enough paying job for long enough within those 5 years)
- a lot of bureaucracy you have to go through to prove you don't have >$50k salary
EDIT: To clarify, zero interest means zero interest. The 150% is the terms of the ISA agreement. You pay 10% of your paychecks to them until it's either been 5 years or you've payed 150% of the principle amount. Most people that get jobs in tech will have paid the 150% before the 5 year mark
- zero interest
- {snip} you end up having to pay 150% of the principal loan (assuming you have a high enough paying job for long enough within those 5 years)
That just means it's not compound interest.
that's not true. simple interest is calculated on the remaining principal, thus it does continue to accrue with time (which this "zero interest 50%" does not)
compound interest means interest calculated on the remaining principal and on accrued interest.
https://www.investopedia.com/ask/answers/042315/what-differe...
IMO, this is the essence of why ISAs have become so scammy.
ISA-based bootcamps are doing a fantastic job of competing against the perceived cost of a college education. We've all seen news headlines about how private college tuition is reaching $200K. What most people miss is that almost nobody pays full price for college. They have a high headline number for the wealthiest families, but virtually everyone else pays a fraction of this cost or some times nothing at all.
People see the "$30K" price tag for Lambda School and other programs and assume it's a steal, yet most in-state tuitions are in the same range and provide substantially more education.
I've also been completely stunned by how bad some of these programs are. I took the bait about Lambda School back when PG was promoting it all over Twitter, but it has been a terrible disappointment for the small handful of bright students I've known who went through it. Maybe it's changed, but at the time it felt like they were paying $30K of future earnings to have an inexperienced person point them to simple tutorials that they could have found by themselves online. They were basically paying for the certificate that said they completed the program, which is ironically the stereotype that people were using for 4-year colleges at the time.
on the other hand, the time cost of a bachelor's in CS is much higher than that of an 8 month (?) bootcamp. four years is a long time to spend treading water wrt employable skills.
I do feel that the degree is better long-term if it's at all possible. but that's not realistic for everyone. if at the end of the bootcamp you get a decent job that you wouldn't have otherwise, that seems like a good deal. if not, you're out a lot less money and time than flunking out of undergrad halfway through.
Only if your sole goal in life is the pursuit of money. Most of the people I know enjoyed their time at university, they got to learn in a structured manner about philosophy and other interesting topics while having freedom to indulge in intellectual curiosity. Life isn't a race to get on a career path.
I do agree that flunking out is probably the worst outcome though, so if academia isn't for you don't feel pressured to pursue it - it certainly won't make any difference in terms of your job prospects by the time you're 30 as a developer. We just need to stop treating university as a vocational training session.
Is it treated as a vocational training session? I thought university was more about signaling some combination of socioeconomic status and ability to learn/motivation. More selective schools and more difficult coursework (such as hard sciences or engineering) signal a potential employee who is able to learn and manipulate the system they are put in, as well as possibly bringing useful connections.
Presumably life isn't a race at all, which makes you wonder why everyone is in such a rush to attend university when they are young and don't yet have the resources to pay for it. It will be still be there when you are older and the pursuit of knowledge will still be every bit as enjoyable. It may be even more enjoyable as you then have the life experience to appreciate it. Retirement is meant for these types of hobbies.
Internships during school can be a massive salary increase for many people. Even 25+$/hour is quite a large pay bump for a large chunk of the population, and many internships go well past that.
You're using this statement to claim that college is not actually expensive but I'm pretty sure it supports the opposite claim. Anecdotally, I was accepted into a range of universities and ended up picking ~ the worst one because that was the university which gave me the best scholarships.
If college is extremely expensive then it makes perfect sense that the only people paying full price are the people who have a lot of money: everybody else is filtered out by the high price.
That being said, I think ISAs are actually partially successful in that they provided a way for someone broke like me to try something and not have to worry too much about the impact if it doesn't end up succeeding. I wish people in my position had more negotiating power to avoid being overcharged, but that's not a problem unique to ISAs
You pay if you have no job, or any job. Debt has no expiration and is not disc arable in bankruptcy.
It is clear that ISAs are worse if you will be successful. It is also clear that traditional loans are worse if you are wildly unsuccessful.
The tradeoff is the tricky part.
A better alternative that you can pursue today is just to seek education abroad, Canadian universities are a fraction of the cost for an equivalent service - or be careful about the education you choose, most state colleges are very reasonable for in-state tuition and you can potentially save on room and board.
Ivy-league schools are overpriced and a waste of money.
I'll take it.
That extra 50% is a once-off fee.
A high fee, to be sure, and one that is deferred, but a fee nonetheless.
So the actual interest is like 100%? Though it's fixed over a 5 year period, so that turns to around 30% yearly interest rate. Hardly zero.
-> Most people that get jobs in tech will have paid the 150% before the 5 year mark
That's even higher interest for these people. But I guess it's an incentive for the program to get people good jobs.
In straight amortization using $30k tuition, $45k repayment, over 60 months is $750/mo which works out to 17.25% rate.
It isn't a great deal but it's not terrible vs. other low recourse private loan options.
https://www.calculator.net/loan-calculator.html?cloanamount=...
In reality the APY will be heavily dependent and on your income (as a high income will result in repayment period less than 5 years, while a low income will result in only partial repayment by the end of the 5 years).
Yeah, because there's adverse selection going on: "But people with high credit scores tend to have better, cheaper options than ISAs". All the academically successful student can get student loans/scholarships to traditional 4 year programs, so you're left with people who are genuinely bad mixed with diamonds in the rough. Because of this, you have to charge more to make up for the bad application pool. I'm not sure why this is worth complaining about. It's like complaining that lawyers who work on contingency overcharge compared to ones that work by hourly.
>A good compromise here would be to make private loans fully forgivable
So basically turn them into unsecured loans with sky high interest rates?
Warning: US centric post below.
If you could file bankruptcy on private student loans, education costs would plummet overnight. Before you claim that education quality will go down, MOST of the money for both private and public colleges/universities ends up somewhere else beyond education. Football stadiums, expensive ad campaigns, fancy buildings, large marketing departments, even political lobbying. Kill off untouchable private loans and place restrictions on public loans then you will see money flow in the right direction.
ISAs are foolish, regardless, because you don't need a degree to write code or manage infrastructure. My income was near $400,000 last year, and I not only didn't go to college, I dropped out of high school due to being homeless. In either W2 or contractual work, I've NEVER had a company question why I did not have a college degree. I understand some folks need the structure, and I think those folks need to be protected. For non engineering jobs or more structured jobs, ISAs are borderline criminal. For everyone else? Unless you like throwing away money that you don't have, stay away.
I think there is a reason you can’t do that. People won’t learn to program with that. I do not defend Lambda School anymore, but I think you are oversimplifying things to make your point. Which, for me, has the opposite effect of thinking less of your point when you oversimplify like that.
If they can complete a difficult project, and get though a whiteboard interview, why not hire them as a junior developer.
Just because someone paid 30k for a boot camp doesn't mean they can code.
I mean, learning on your own is certainly a thing, especially in our field. My own beginnings were self-taught from a book. But structured environments are important, too, and for many people the only chance they'll have of learning something, because they can't or won't otherwise. Does the "cost" (which we're calling a flat $X as if it were paid upfront, ignoring the ISA details) have to be so high for these bootcamps? Probably not, but if you're going to attempt to replicate something like a structured experience, your costs aren't going to be nothing. But that's beside the point, since in the style of "charge more" advice from startup founders, if you're trying to build a business, your cost is what the market lets you get away with, not what some randos on the internet not in your target customer base think is "fair".
Worked for me.
Noting bad happens if you open up VS code and write bad Python. I wanted to make games with my friends, subsequently I learned enough to get an entry level job.
What about the Odin project, that's free. Coursera is very inexpensive.
I'd advise at least trying that before blowing 30k. Particularly if these bootcamps are fudging placement numbers.
Are you a person who interviews? If not your opinion is of little weight. If you do hire people I’m sure if you advertise your policy you’ll get lots of people who will be happy to try their luck.
I think one good solution is Western Governor’s University which falls in that price range and is extremely flexible on timeline.
But honestly there are a lot of students who want high quality intensive instruction but cannot attend a top-10/20 university. It’s very very hard for most people to find high quality learning outside of those programs unless you get extremely lucky to be in the Bay Area or at a company which can provide an environment full of experts to learn from.
If small claims court is genuinely their only recourse, that sounds like something I might try my odds in, especially if I have a compelling case that I've been screwed.
I'm just thinking out loud. Lambda school obviously failed to deliver on its promise but what if we can deliver the same service for very little money?
That being said, top law schools or top schools for that matter are within reach for low income individuals as long as they clear the entry criteria.This entry criteria is a whole another debate but Lambda and other schools also have an entry criteria.
There are need based scholarships and I think Stanford/MIT/Berkeley offer free tuition if your parents earn less than 100K per annum or something like that. So opportunity is definitely there but then not everyone can make it to Stanford, yes but that doesn't mean you saddle yourself with a huge debt by going to a lower tier school, knowing that your loan repayment capacity will be very low in the initial years of post graduation employment.
You're thinking about this from a very different set of life experiences. Not everyone knows to look for things like that. Not everyone even realises that there are different tiers of law schools. If no-one in your neighbourhood has ever met a lawyer socially, why would you?
ISAs align incentives between teaching institutions and students, they're strictly better than the tuition model. They don't fix all issues because they still require selectivity on admissions (since the school needs to students to succeed in order to survive).
ISAs are also not guaranteed to be good, but the ones originally used by Lambda School were good (Lambda School is somewhat of a third rail topic on HN, so it's worth just considering the terms).
- Only require repayment if students gets a software job making >50k.
- Payment was bounded to 10yr or 30k whatever happens first.
Compare to college tuition which charges huge sums of money often paid for by non-defaultable loans and schools don't really care if students ever get employed by anyone.
From his tweet thread conclusion:
1. Consumers are confused by ISAs
2. And when they take the deal, they often behave poorly
3. And when they behave poorly, you don't have great recourse
4. And there's a looming regulatory threat
5. And the financial markets aren't supportive
My takeaway from this is that it's harder to build an incentive aligned business that really gets students to succeed than it is to take their money as tuition and not have to worry about that so much for business building. I guess I'd argue no shit - that's why ISAs are better, they force the companies to be good at getting positive student outcomes because it's an existential risk if they don't.
That's kind of the entire point.
Well, there's two ways you could operate an ISA:
1. You invest $20k in each student, carefully selecting only the applicants who are most likely to succeed, and giving them the most impactful, high-ROI courses you can, so that they almost all repay at least $20k
2. You invest $500 in each student using prerecorded video classes and assignments graded by unpaid 'mentors', take on far more students, and every time you luck into a student who repays $30k that's pure profit, baby.
1. Invest $20k in each student, etc.
2. Invest $500 in each student, and get paid $20k in pure profit right away, baby.
So while the ISA model doesn't prevent scammers, I have no counterargument to "they're strictly better than the tuition model".
3. You invest $500 in each student using prerecorded video classes and assignments graded by unpaid 'mentors', take on far more students, then structure groups of ISAs together into ISA-backed bonds, which you then sell to pension funds and other institutional investors for 15% off par value, or $25.5k each.
Not only do you get paid up front, but whether or not the ISAs eventually get paid back is no longer your problem. Also now instead of recruiting and vetting 200 teachers to teach your 2000 students, you recruit 10 teachers and a couple experienced sell-side traders and analysts.
That's very, very hand-wavey. I'm in broad agreement with you that, at this moment in time, ISAs are probably better than tuition for most people, however, they are an immature financial instrument (relative to traditional tuition loans) and so little effort has been into extracting as much profit from them as possible... but that doesn't mean it's not possible, nor does it mean that it won't happen, and it certainly doesn't mean that there is some inherent alignment between ISA institutions and students.
All the positives about ISAs could have been said about student loans a few decades ago! That's before even challenging the assumption that higher student income is best for all parties involved: if a student discovers that actually, their new career is miserable, there is suddenly a huge incentive mismatch.
They are not incentive aligned for students who make between 0-50k. Lambda gets no money.
They’re extremely unaligned for students making a little over 50k. The student takes home drastically less money because they hit the threshold.
They’re aligned for students making some narrow range above 50k.
But once you go above that range they are no longer aligned because lambda is capped out.
They are not incentive aligned with most students, incentivizing Lambda to act against the interests of most students, which they have.
The are aligned because <50k is a failure for lambda. They're aligned because they need students to make >50k.
> "They’re extremely unaligned for students making a little over 50k. The student takes home drastically less money because they hit the threshold."
The point of lambda school is to get people decent jobs when they didn't have any good options prior to that. A little over 50k where 14% of salary is paid back is the worst case, but probably still better than before. Definitely better than >50k of debt and no job from tuition costs.
> "But once you go above that range they are no longer aligned because lambda is capped out."
Good student returns funnel more students into the program. If you can succeed with this at scale it's a big deal. If they can actually teach people to dev vs. just selling a credential there are even more ways to build on this.
Lambda School agrees to end deceptive educational financing practices https://news.ycombinator.com/item?id=26946972
If the institution was accredited and there were inspections and punishments to keep quality above a certain threshold the model might work but right now it basically invites companies to operate like scammers.
Point being, federal loans are not a good deal. Each dollar you borrow effectively increases your tuition by 60 cents.
(1) https://www.newyorkfed.org/medialibrary/media/research/staff...
Yes. As it turns out when you invest in people with no skill, background or money - your investment goes to zero (excluding outliers). For companies like ycombinator the outliers are everything. But in this horrendous business model they can't capture the outliers' profits without being exploitative.
If you honestly sat me down for 4 hours I couldn't think of a worse idea. Uber for cats? Rating people with a general global score? Selling loans to people out of rehab. I can't do it.
First 15 minutes you learn in any loan business is: Income, Debt-to-income Ratio, Collateral. If those are out the window - you are either better than a trillion dollar loan system - or completely insane.
In view of that I see no alternatives to price controls. Any school that takes federal student loans can charge no more than $X,000 annually. I hate price controls but I don’t see the alternative in a market where government policies otherwise both goose demand and limit supply.
Better than an ISA is an income-dependent loan with some minimum amount that must be paid back regardless of the program outcome.
With this setup:
1. You concede and comply with the existing regulation
2. You get access to the existing capital markets so financing costs come down
3. You can use credit reports as a way to enforce the contract so collection rates go up
4. Consumers already understand debt
And, most importantly, the consumer gets a better deal than a classical loan.
Similarly a bad idea relative to plain old federal loans?
I don't see how this proposal is a better deal.
The max for undergrad federal loans is $57,500.
If you finish in 4 years, the max is about $45k
This statement seems to be going unchallenged. It wouldn't surprise me, but if you check @BloomTech and @Austen on twitter, you can see they're still talking it up: https://twitter.com/BloomTech https://twitter.com/Austen
https://www.bloomtech.com/tuition/income-share-agreements
So they didn't go away and Lambda didn't completely collapse.
The outcome based loans aren't better, they don't have a payment cap and don't expire if you get a job offer above $50,000 a year.
I wonder if they offer every graduate a teachin' position.
> The online coding school that invests in you
> Train remotely to become a software engineer or data scientist and pay nothing upfront until you are earning $50k or more
> Second, credit scores were the most predictive variable of good participant behavior for us. But people with high credit scores tend to have better, cheaper options than ISAs.
And then claims that the simplicity of the instrument makes them a better option than debt ("simplicity" isn't a virtue if the alternative is middle school pre-algebra levels of "complicated" and comes at much lower prices):
> Furterhmore [sic], consumers were consistently confused by ISAs and had a vague sense they were exploitative. I think ISAs are less complicated than debt, but consumers don't have experience with then.
His TL;DR has borderline misleading levels of... interpretation. The real story is that ISAs are exploitative and most consumers -- ESPECIALLY the ones who might actually do okay in life -- can't be "educated" out of seeing that an obvious raw deal is an obvious raw deal. So you're left exploiting the folks everyone else considers too risky, who, it turns out, are... too risky.
Like... he says so himself, in so many words.
a) commission based pricing (aka, incentive alignment pricing)
b) deferred payment
To the second bullet, the major problem of deferring all payments, however, is that you attract a lot of people looking for a shortcut. This is exactly the opposite attribute top employers are looking for. This is the "adverse selection problem" Sean mentioned.
Ultimately, the solution here is in selecting for the right type of students into the ISA-based program. Sean mentions that credit scores track with the type of students they're looking for. Other ISA-based programs have stated that they've found a secret sauce other than credit scores for detecting the right students.
We've found a different selection criteria:
We ask students to do a lot of work before we engage them with an ISA. I'm calling this model the ISA-later model, just so we can contrast this with an ISA-first model, which is what Sean and everyone else is doing.
An ISA-later program solves nearly all the problems associated with an ISA-first approach:
- adverse selection is mitigated since you have a long track record of student behavior and performance
- can still be egalitarian, without relying on credit scores or degrees or any socioeconomic markers
- still possible to defer all payments, without the lock-in of an ISA-frst approach
[1] launchschool.com
> Once students graduate from Capstone, they are expected to spend 40 hours a week Monday through Friday searching for a software engineering career. Weekly check ins are mandatory.
I don't think I could handle a 9-5 job, let alone 8 hours a day applying to jobs under penalty of unspecified legal consequences.
The idea is that we want to set expectation that people should focus on searching for a job and not, say, go on vacation. The wording here also is far more severe than reality only because we want serious participants.
On one hand, the total payback would be $40K for six months of school. That is really high even for a top-tier college.
On the other had, she has ended up going from $30K/year to about $50k/year and is paying $5000 per year towards her ISA. So her income went up by $20K and she's keeping $15k of it. That's a pretty big win - so six months of school, increase in net income of 50%. Not bad.
So where's the real problem? For every person like my daughter, there are lots of people who spend six months, and end up not making enough money to pay back the ISA. There's a lot more to improving your income than going to school. Everything from grooming habits to interpersonal skills to punctuality. The school was taking on immense risk of getting no money from many of the students.
That's 50% increase in gross income, not net income.
Isn't that a feature, not a problem? The education institution has a strong incentive to actually improve the earning potential of its graduates. This is in contrast to institutions that get paid upfront, which have no such incentive. Once you've forked over the tuition they're getting paid regardless of how well its graduates do in the workplace.
I think the learning here is that institutions offering ISAs need to be more selective with enrollment.
For reference, my wife worked at a restaurant during undergrad, stayed with her parents, and didn't have much scholarship money. She paid about $40K ($30K in loans, $10K in money from her restaurant and tutoring gigs. We paid off the loans with signing bonuses before they accrued any interest). Again, for FOUR YEARS of education at a full university. Why does that matter? Well, she had three majors in three very different subjects, any one of which enables a lucrative career and the combination of which makes her extraordinarily valuable.
Sorry if this comes off as rude, but I can't even begin to imagine thinking that $40K for 6 months of instruction in white collar commodity labor is a good deal.
And yeah, bragging about how cool your triple-major wife is while sneering at those of us from a lower class background where making it to "white collar commodity" is a big step up is pretty damn rude.
She wasn't in suspended animation for four years. She received four years of a valuable service.
> us from a lower class background
She grew up in a single parent household, was the first person in her family to receive a college degree, and paid rent (actually, started helping with household expenses in high school).
So if the same degree had taken eight years, would that make it more valuable? You're still talking about delaying her life for those years.
I don't know enough to comment about how much different course providers are teaching, but if they really were managing to teach you the same things as a four-year degree in six months, that would surely make it more valuable, not less.
The time value of money is powerful, but specialization in unique intersections of skills entails earning power. The place where that intersection lies on a graph will be different for each person and some of it comes down to luck.
Do PhDs generally have positive expected value? Not really. Deep learning PhDs 10 years ago? Ask a retired 30 something.
In her case, 8 years would probably still have been worth it, from a purely monetary perspective, even assuming disciplined saving and excellent returns on savings during those first 7.5 years.
You're still talking about delaying her life for those years.
In what sense? She worked. She played. She loved. She got progressively better paying and opportunity-creating part-time jobs (aka internships). She learned. Etc.
There's a lot of negative things you can say about college, but "delaying life" definitely isn't one of them if you're doing things right.
I don't know enough to comment about how much different course providers are teaching, but if they really were managing to teach you the same things as a four-year degree in six months, that would surely make it more valuable, not less.
If you only get out of 4 years of education what you could have learned in 6 months, then yes. And I have no doubt that happens.
But if I could choose between e.g. $30K for a high quality CS+Bio+Finance BS or $30K for a high quality 6 month program in one of those, the choice is sort of obvious for me. The opportunity cost of the 3 years is more than worth the amortized increase in specialization (== earning potential) and risk mitigation over a 30+ year career.
I'm proud if what my daughter achieved in so little time.
Time will tell how things work out for both.
So, seems like she kept around $12.5K of the $20K (less if she’s in a state that taxes income), which is an improvement to her life, but is less than +50% increase in her pocket.
Yes.
> credit scores were the most predictive variable of good participant behavior for us.
Unrelated, an insurance adjuster once told me that, given two people of the same age buying the same car, credit score is the number one determinant which one will be more likely to get into an accident. Luckily (or unluckily, depending on your position) most states make it illegal for determining insurance premiums.
I'd like to know how that differs from just plain income? The more money you make, the easier it is to keep clean credit. But it also gives you more control over driving to let you be a safer driver.
Overnight snowfall made the roads slippery? An office worker can go in late, or just work from home for the day, but the low paid service worker has to go in or he doesn't get paid (or might even lose his job).
Feeling sick today? Office worker can just call in sick, the service worker doesn't have many (or any) sick days, so he drinks half a bottle of cough medicine and drives to work anyway.
Going out for a drink after work? Well paid worker can take an Uber home, or get a hotel room in the city, an option that the low paid worker doesn't have since even if he took Uber home, his car is parked on the street and is going to get ticketed or towed.
Running late for work? Office worker can call in to the meeting or reschedule his morning meeting (and just shrug and say "traffic" when he shows up late), low paid worker is going to get his pay docked or lose his entire shift for being 5 minutes late so he's gotta drive fast to make it.
Most accidents are caused by things that are pretty ordinary forms of irresponsibility [1]. A credit score is a (flawed) measure of financial responsibility. That seems like a much more reasonable, although less narratively satisfying, connection.
[0] https://www.federalreserve.gov/econres/notes/feds-notes/are-...
We find a low correlation between credit score levels and income, with the correlation coefficient around 0.27 for income levels and 0.29 for log income.
Driving too fast for conditions or in excess of posted limit or racing 8,746 17.2%
Under the influence of alcohol, drugs, or medication 5,164 10.1
Failure to yield right of way 3,728 7.3
Failure to keep in proper lane 3,381 6.6
Operating vehicle in a careless manner 3,302 6.5
Distracted (phone, talking, eating, object, etc.) 3,008 5.9This is a big diversion form the actual point, but it's important. The vast majority of these crashes (the word "accident" is rarely used by news/DOTs/etc anymore) could be prevented by designing streets to control speed and improve visibility. So I'd argue that they're caused by poor design which comes as a result of misplaced societal values.
Re the second item in that list of causes, an interesting article came out a couple days ago: https://www.bloomberg.com/news/articles/2022-03-21/make-the-...
And if you make school tests easier, everyone will get a passing a grade, but that’s not the point.
The point here is that responsibility is not an area specific skill, people who are financially responsible, tend to drive responsibly, people who are reckless drivers, tend to be reckless spenders too.
The same logic applies to all sorts of things like obesity, smoking, etc.. These things obviously have multiple causes-- some societal, some individual. It's not a binary.
Interestingly, these two articles claim a correlation:
https://bluewatercredit.com/is-there-a-link-between-your-inc...
Low income (50% or less of MFI) = 664 median credit score
Moderate Income (50% to 79% of MFI) = 716 median credit score
Middle Income (80% to 119% of MFI) = 753 median credit score
Upper Income (120% of MFI or more) = 775 median credit score
You have to like, control for things and stuff..
The amount of data and studies out there to correlate income level and credit rating is surprisingly low. The data set used by the Fed seems surprisingly weak, a self-reported survey sent out with credit card offers:
We use the Mintel/Comperemedia data (the Mintel data henceforth) that provide a unique combination of credit scores and survey-based income data for the same consumers. The Mintel data set is a monthly proprietary survey of credit card offers, with about 2,500 consumers selected to participate in the survey each month. Participants of the Mintel survey have very similar educational attainments and income to other nationwide representative household surveys, such as the Survey of Consumer Finances. The Mintel sample, however, has a somewhat higher average age and greater share of white consumers.
Because it indirectly measures responsibility to a certain extent, though of course there are exceptions. And there’s not really another, better way to quickly check if someone is generally responsible.
And you can definitely find lower income people with good scores and higher income people with bad ones.
If one is well to do, they're going to avoid making a claim unless the economic cost of the event is catastrophic (in which case, everyone is making that claim), and so the credit score is being used as a proxy for household financial strength (which is lazy, but easier than ongoing income and asset surveillance, although some credit card companies do this for credit risk management [Amex comes to mind]).
EDIT:
> That’s the bleeding heart take, yeah.
Guilty as charged.
What percentage of those are on their third or later always-financed, premium smartphone, have a $150/mo cable package, and a $150+/mo coffee habit, cook less than half their meals, are leasing a late-model car, etc.?
At some point in a long enough series of spending decisions, I think you have to consider responsibility a factor in being unable to afford $1000 unplanned expense.
Take home pay after taxes would be around $1600, leaving $400 after rent to pay for food, utilities, healthcare, transportation, etc.
Those people aren't spending $150/month on cable and they don't have a lot of spare money to put away for a rainy day.
You could move to North Dakota where average rent is around $900, but then min wage there is only $7.25/hr, giving you around $1100/mo after taxes with $200 left over for everything else.
The truth is that credit scores do what you say, AND they also measure responsibility in practice, enough to where you can find all sorts of correlations.
It is also just a proxy for income, which is harder to quickly/cheaply verify than a credit score.
Are you sure about that? It's more annoying to have to change them, but as someone who bought some long ago, it was cheaper than new, even taking into account how much wear there was.
Most used tires actually have lots of wear left - people throw them out because they get a puncture and want all the remaining tires to match. Or even more common they have 2 good ones in back, and 2 bad in front (they forgot to rotate tires), and just replace all 4.
Those 2 good ones are sold for much less than new, but they're almost as good as new.
> If she had access to credit she could have bought new tires on credit.
Once you pay interest on that credit, there's no way she would have come out ahead. Used tires are the correct thing to do here.
> It is also just a proxy for income, which is harder to quickly/cheaply verify than a credit score.
If you look at the other replies you'll see that credit score is actually not a proxy for income. It measures responsibility.
The last time I got my tires changed, I paid $24 for mounting and balancing each one. Low end new tires cost around $60, so even if the used tires were free, it wouldn't take many changes for them to be more expensive. Plut it takes a couple hours to drive to the tire store and wait around to get them changes, so that's a cost too.
But I didn't buy the cheap $60 tires, I bought the $100 tires with longer treadwear warranty and better performance in rain/snow... another advantage of having more money - I can reduce my chance of getting into an accident by spending more on better tires.
>If you look at the other replies you'll see that credit score is actually not a proxy for income. It measures responsibility.
I do see now the other reply with the Fed's article about the low correlation (0.29) between income and credit score. That's pretty interesting/surprising to me; I stand corrected.
Yes, but their as an emphasis on it being done repeatedly, which is why it incurs such a large expense OVER TIME.
When I worked in the auto Industry we used to charge customers at the dealership for disposal fee on tires, unbeknownst to them a lot of the techs and us in parts had a look at the take-offs and tried to keep some around just in case for friends or workers who were on hard-times to avoid this--they also made good rollers when tying to sell spare shells/chassis projects we no longer wanted. They typical size 205-15s were always gone as they were used on your basic econoboxes and fit most steel wheels.
I've mainly bought used tires after making the mistake of buying new I bought my first car when I was a teenager as I had a bad experience with the return policy at Sears (my mom forced me to buy new). Whether out of need or simply convenience I could simply get them easier than ordering most times and I knew where to look and who to call, but I had the luxury of working in the auto Industry and living close enough to work that I could walk, ride a bike or use one of my other cars or motorcycles. But even then I had a hard time getting all-season 255/35/20 in the middle of winter in CO for my car that I brought from SoCal, it sat parked for about 2 months until the weather improved and I ended buying a beater car for nearly the same price of the tires new even with an employee discount.
> Are you sure about that? It's more annoying to have to change them, but as someone who bought some long ago, it was cheaper than new, even taking into account how much wear there was.
If that seems to be the consensus around here, it once again omits a great deal of anecdotal evidence for the majority of people. Specifically when taking how devastating COVID was for most retail/service workers in the US and around the World.
Want to know how I know this?
Bank fees are typically the most common ding on people's credit scores, perhaps second to late or missed payments on bills or credit cards and student or medical debt rounding out the trifecta: guess who incurs those most frequently? You guessed it, people who are often unable to maintain any savings and thus have a low bank balance because they live paycheck to paycheck.
I lived that way most of my young adult life, too.
When you realize how predatory the banking system is first hand, it makes your blood boil: I had friends in the culinary World who essentially had a large part of their stimulus checks eaten away due to overdraft fees, which are structured in such a way in order yield the largest fees for the bank(s) [0].
I was moving out of the country and I gave a friend some Hifi equipment, an HDTV, and a spare car I didn't want to bother selling in order to get him out of debt.
Sadly, he couldn't even afford to register the car after he sold the TV and HIFI after paying rent and utilities as his hours had been reduced due to COVID, which is once again a reminder of who has poor credit and why.
0: https://rightsradio.com/removing-unfair-bank-overdraft-charg...
There are places where it's true - for example short term rent. And buying in bulk.
Buying used is not one of those places. Buying used is the correct thing to do for someone with low income.
It's starting to lose its meaning unfortunately, as most companies realize you can just charge a lot of money for the cheaply made shit and most consumers just don't have easy options to avoid buying it.
When your cost of necessities for living (food, rent, utilities, etc) is close to your total income, all it takes is a small disruption in your income to cause a cascade of credit lowering events that are hard to dig yourself out of.
The purpose of credit scores is to predict outcome, not measure the effort or intentions of people to overcome their personal situation.
So in an unusual way, credit could almost be an approximation of EQ.
But now that I have a good income, it's easy to pay bills on time, or even early, even if a payroll snafu that's not even my fault means my paycheck is late, I have plenty of cash in the bank to pay bills.
It has basically all the same advantages you mentioned but also filters out high earners with rash behavior and or low responsibility.
I know plenty of high earners with low reliability and impulsive behavior.
Basically credit score is a measure of how you manage debt, which is easier with higher income, of course. An edge case I myself recently run into is that having no debt would lower your score, as having no debt provides no evidence of how well you can manage it.
Doctor and nurse who work in the same hospital and have basically the same commute buy the same car. Doctor might bump someone in rush hour gridlock. Nurse is gonna nail a deer at 60mph at 4am. Doctor is gonna park it in the garage. Nurse's car is gonna get hit on the street. Doctor is gonna rent the Home Depot truck. Nurse is gonna bust the windshield trying to get a pipe in there. Etc. etc. There's tons of situational factors that make it so wealthier people can afford to be way easier on their possessions.
The side arguing that we shouldn’t use credit scores this way usually don’t bother arguing for a viable alternative, because it doesn’t align with their own needs or ideology. They don’t have to worry about people repaying an income sharing agreement or loan, so the fact that not using credit scores makes managing those things harder means nothing to them.
Honestly, loans seem like the least objectionable use of credit scores to me. Repayment of debt is the main thing they’re built around.
Right, which goes to the point the author made about these agreements seeming exploitative. Why exactly aren't they (education ISAs) exploitative is my question. They're essentially loans with much fuzzier terms, and the Consumer Finance Protection Bureau agrees [0].
But, for the sake of accuracy, one should note that the author's company wasn't offering education ISAs. They were operating on more of a talent agency model, and their basic ISA was 10% of pre-tax income for 18 months [1]. I think 18 months is a reasonable term, and 10% could be a reasonable percentage, but, again, the terms are inherently opaque, because there's no way for the consumer to predict what the outcome would be.
What I wonder is what sort of jobs/careers the clients were ending up in, and where they started. Knowing that would make it possible to judge whether the outcomes were worthwhile or not. We're not talking about sending people back to school to earn additional qualifications, so, I'm guessing it wasn't a case of people landing $100+K/year engineering jobs and such. They say their aim is to be able to take someone making $40k and get them to $52k, possibly in part by moving cities. I wonder how satisfied these early clients were with what they received.
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[0]: https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes...
That's surprising to me given all of the other ways credit scores are used. Is there a rational reason to allow credit scores to be factored into hiring decisions but not insurance premiums? Or is this just the law being messy and inconsistent in reality?
Some states (Maryland comes to mind) do limit the maximum surcharges you can implement because of credit, although there are sneaky ways around this that everyone uses, like underwriting tiers (GEICO) or using credit in multiple places (Progressive).
You'll have to be more specific.
Because I live in a State where credit scores can not be used for hiring decisions unless you plan to give that person signatory powers over your company checkbook/company credit card, or unless that person works for law enforcement, or unless that person will have to deal with lots of cash at any one time, etc.
In my case, I found AppAcademy really helpful because I had a set of engaged peers, I had access to TAs to help answer questions, and the material was solid. However, from what I've gathered, a lot of the industry moved away from teaching this way in order to scale their classes and make more $$. Videos have replaced live instruction, class sizes have increased, and they let anyone TA classes. I wonder if most of the failures of ISAs are due to the poor product these companies are offering vs the issues with ISAs themselves.
To be clear, I have no idea what life is like outside of the world of selective schools and employers - as far as I know, Lambda/Bloom actually delivers on their goal of improving their student's employment prospects. But the fact that they need to charge the students at all implies we're not talking about anybody getting a FAMGA job or similar.
The root problem seems to be that most students don't end up finding jobs.
According to leaks, only 27% of graduates ended up making over $50k, which is the threshold where they had to pay back the company. Each student costs the company $13k, with $2,500 in CAC alone. At the time, the ISAs maxed out at $30k, which you'd hit way below the FAANG scale of wages.
https://www.businessinsider.com/lambda-school-promised-lucra...
Let's say you have a cohort of 100 students. It costs $1.3m to train them. 73 pay back $0. Even if the remaining 27 end up in FAANG jobs, you only make back $810k.
I don't know if I buy the whole, "A four year degree at Stanford and 12 years of mathematics from age 6-18 is the only way to produce a successful software engineer." I know you're not making that claim explicitly, but it feels like an implicit claim.
How? What prevents those recruiter from just contacting your institution's graduates over LinkedIn?
Sound a lot like the dog-walking app that found themselves with an unreliable business model because dog owners and walkers just started using cash and circumventing the app.
That said, I believe there's a lot more we can do to help ease the financial burden from students and I love the direction of trying to move the cost of education from students to employers. I'm working on that.
Have you actually tried it? I'd be pretty surprised if the employers attempted to cut you out like that. They're already accustomed to paying recruiters, and the access / promotion that you can provide them is worth the money. You could also sue them, whereas if you try to sue your students for repayment of their ISAs you run a high risk of bad PR.
Further, grads can (and should) apply to companies that aren't partnered with us. I don't want them to only apply to a limited set of partnered employers.
We've been operating for about a decade, so we've tried basically everything once :) Our current corporate partnership program is here if you're interested: https://launchschool.com/employers/placement
If you're capable you'll probably get a job regardless of what path you take (4 year university, community college, or bootcamp) and if you're not capable then it will be a struggle. However, the people who are capable overwhelmingly choose the more traditional paths and bootcamps end up getting the rest.
If there was a way to select students who were extremely smart and create a class of those people then I think you'd get a really good flywheel going. Smart people attract other smart people.
Wouldn't the schools' students graduates apply there anyway?
I mean, if FAMGA companies need to pay recruiting fees for entry-level roles, why doesn't Stanford get paid recruiting fees?
Stanford and most tier 1-2 colleges do get paid recruiting fees. If you've ever worked with a college career center or talked to a recruiter who has, you'll know that it costs a ton of money to set up a career fair booth or organize a talk.
https://forum.stanford.edu/events/careerfair_affiliatefactsh...
So? Engineering pays much better than most industries so even if you're not getting into FAMGA it's still a success income wise.
VAT and payroll taxes often make up a larger portion of the budget than income taxes. These usually are not progressive.
Poor people don't even pay for their own benefits, how can you say they fund education for the rich? Rich people are net payers and poor people are net benefactors, if some poor people got an education and remained poor then their education got funded by others, if some rich people got an education and remained rich then they just paid slightly less net to the system, their education wasn't funded by the poor.
Under no circumstance do the poor fund the rich in this system. The main group that loses out are high income earners who didn't get a degree, and the main group that benefits are poor people who got a degree.
You're talking about the US and maybe some EU countries, but definitely not all of them. Everyone pays VAT equally regardless whether you're rich or poor. Furthermore, income taxes in most European countries aren't as progressive as in the US.
And even then, net tax payers can all be considered to have paid for their own education, you never see a situation where poor people fund the education of rich people. At worst you can say that median earners fund the education of median earners who failed to leverage their education to get a better job. But it is mostly a wealth transfer from rich tax payers to poor graduates who didn't get lucrative jobs.
Edit: Also at least in Sweden the worker movement lobbied hard to make education as cheap and available as possible. The cheaper and easier it is to get educated the less of a wage premium it becomes to be educated, making for a fairer society. It is a problem if poor students gets tempted to take a low wage job instead of studying just to make money sooner, it is much better for everyone if they don't have to think about that choice, which is why students gets paid to study in Sweden.
But the poor people paying for it don't get the money back. It's going to some other government program, not necessarily to benefit them.
>It is a problem if poor students gets tempted to take a low wage job instead of studying just to make money sooner, it is much better for everyone if they don't have to think about that choice, which is why students gets paid to study in Sweden.
Why is it much better for society? Most people don't seem to end up doing jobs that are related to their field of study. Sure, there are studies that show that people with a college education are better off than those without, but you have a self-selection problem there. People who have the capability to do well in college will already do better than the average.
The more accurate framing is "100% of people pay for 100% of people to have the opportunity to go to college".
A good analogue is insurance: even though 99% of people might never file a claim, it's not 99% subsidizing the 1% the do-- it's 100% paying for protection from financial ruin that 100% receive.
Your framing would apply if there somehow were a group--people with blue eyes, people born in May, whatever--to whom access was limited.
It's not though. If you lack the aptitude then you will not have this opportunity. You will still have to pay for the ones that do go though. Oh, and they're going to be out-earning you in the future too.
>Your framing would apply if there somehow were a group--people with blue eyes, people born in May, whatever--to whom access was limited.
But this is the case though. Just look at college attendance in urban vs rural populations.
There is one crucial piece missing, though: universities’ incentives. At least in Norway where I live, universities are paid the same for many STEM, humanities and social sciences programs. This causes an oversupply of e.g. historians compared to e.g. software developers, as universities are free to ignore labor market realities.
What a weird statement. I don't know why you put "free" in air quotes, when University education in Europe (or at least in Finland) is actually free. Also, nobody separates kids into vocational vs college-bound schools, kids themselves can choose. And if you later regret going to vocational school, you are welcome to change your mind later. Heck, even if you apply to a really competitive University track and you don't get in, you are free to attend lectures and attain course materials without being officially admitted into the University - this again is free.
There are plenty of vocational opportunities out there that can provide a high standard of living and also a rewarding career.
It can also be pretty expensive to get set up. You don't get into making serious money until you work for yourself, which frequently involves a six-figure investment in tools and equipment.
I do agree that college as a way to get ahead in life is over-sold in the US in particular. It's not a coincidence that colleges don't track student outcomes past graduation, despite their sales pitch of 'preparing students for the future'.
Here you can take a year long course to learn the basics to go to university without going to High-School first- a friend of mine did exactly that.
OFC in reality this is much more difficult due to other factors such as work, family and so on and requires a good degree of discipline, but going to university does so too...
we also have the possibility to go to evening school (for free) to get a High-School diploma and join university as a regular student. My Brother-in-law did that. He learned to be a Baker (in Austria and Germany we have a very interesting craftsmanship system where you train on the job that works out pretty well) and wen to university.
In Spain for instance, it isn’t really free (though it’s cheap compared to the US, around 2.8-3k$/y) but you absolutely get what you are paying for.
I know people who where on meetings deciding the country-wide “update” to the curriculum, and the main reason for vetoing new topics was that it displaced outdated topics for which college X had an expert that was “too old to learn new things, but young enough that he had at least a decade before retiring” (their words).
Health care and university education are things that Europe just does systematically more efficient than the US in the sense of cheaply providing high quality to lots of people. Research I'd be open to debate and business it has to be said the US is miles ahead of e.g. Germany (I'm so jealous of California's NDA and employee IP laws)
There are a lot of important points in the thread, such the difficulty of enforcing terms compared to traditional loans, and the amount of cash needed up front which can only be made back over time -- but solving those problems wouldn't fix the fundamental problem that it's hard to succeed in lending when your target market is comprised of people who are unlikely to pay you back.
The ISA startups learned that the traditional lenders were right, including in their use of credit scores to evaluate applicants -- a lot of people ignored by traditional lenders really just aren't people you want to lend money to.
True. I'm amazed that this line resonates with anyone, ever. Banks will take every cent they can get, the idea they are just leaving money on the table is... not backed up by history (see 2000s house lending....) Credit is available in crazy high amounts to anyone who can pay it back.
There is a large market who are usually ignored (but not always...) - people who need money but cannot pay it back. That is a social issue to solve, but it's not going to be solved by a for profit finance company.
Students can borrow 9k per year for tuition + 9-12k for living expenses (all univerisities are capped at 9k fees despite incredibly disparate outcomes and revenues). So a full time student could be borrowing between 27k (3 year degree, self-finance living) and 126k (6 year degree for a doctor, london cost of liiving). Or nothing at all if your parents can pay your way (why do this? We'll see...).
It grows indexed to RPI+3% if you earn enough. This was a "loan" but you only pay back when you earn over a threshold. When the system was introduced the threshold was like 25k and it was indexed up by inflation. You pay 9% on everything over the threshold and the loan is forgiven in 30 years if you haven't finished repaying.
Here was the problem: Before the first students under this scheme even graduated, the "loan" terms were changed to be more onerous on the students, and have continued to do so pretty much every year since. This year the minimum threshold was due to increase by 5% due to inflation this year. The government froze the threshold increasing the burden on graduates by hundreds of pounds. Essentially, it turns out that by taking this loan you signed a blank cheque for the government to tax you whatever it wanted in perpetuity. The latest proposals are that new student loans won't be forgiven for an extra decade.
Why all this fucking about? Well firstly, it's young people who don't vote. Secondly, it's a relatively small demographic so you can mess them about with relatively little poltical implications. But most importantly, as all the data showed: The scheme doesn't work. It doesn't generate enough revenue to actually pay for the thing it's meant to pay for. Most people are just going to age out of paying off the loan.
When you take a percent of income, you necessarily demotivate the worker. It comes down to this: Once the bare necessities are paid for should I work an extra hour, or should I go home and spend some more time with the family? If the income for the extra hour is decreased, it necessarily decreases the worker's interest in working the extra hour. Or maybe they still work two extra hours, but not three.
To make this work out you either need to make the payback a simple loan (the traditional solution) or you need to put an achievable cap on payments. Either way the optimal societal goal is that if the worker works a bit harder they should earn 100% of the profit from the extra work.
Historically this worked out as the disaster that was sharecropping. The tenant earned 50% and provided labor, and the landowner (who also provided capital equipment) earned 50%. The natural outcome was that laborers rationally did not work as hard as they could have, and the landowner failed to properly invest in equipment since extra income from productivity gains was halved.
Percent of income may make investors salivate, but it's a self-defeating idea.
Second reason is that ostensibly, it aligns incentives. The education company only gets paid if you do, so they’re highly incentivized to provide effective education that actually lands you a good job.
But of course, there’s also downsides, as the twitter OP states.
That doesn't seem to have really ever been true for a lot of people. It's very rare for workers to be paid in proportion to the amount of profit they produce for a company. Salaries are almost always determined by the labor market and the average wage for the role.
Wage labor, which most of these ISAs seem designed to promote, seems to be fundamentally different from the kind of sharecropping relationship you describe.
I'm not saying ISAs are good either, but that this doesn't seem to be true for many, if not most, workers today.
We already have income taxes (wherein the last hour you work is taxed at the full amount of your marginal [highest] tax rate) which serve to act against this goal in the same way, right?
So the main target for something like an ISA are students from middle-class families that want to pursue an expensive education at a "cool" school.
A great example would be the person who went to college and got degree and training to become a teacher, and then found out they would never be able to afford a home staying a teacher and decided to make a change. Another real life example would be the ex police officer who decided they couldn't do that job anymore. (I've met both of these people before)
There are alot of careers that seem attractive to people who then realize they cant make a living doing that but have already used up their financial aid / scholarships / student loans getting themselves into that career.
Dont get me started on ex lawyers who go into coding.
Now you have someone who has struggled, they did art studies, in and out of school, realize the movie director dream is probably not going to happen and art pays horribly in general for day to day work. ISA is perfect for them, they have no income prospects currently. But this may be an adverse selection in terms of someone who has struggled with education generally (though a fantastic story if they make it through.)
Where it gets really messed up is the people who did what they were "supposed to do" and got a STEM degree in Chemistry/Biology/Physics. Only to discover that there is basically no employment for people with just Bachelors degrees in those fields and they would have to go deeper down debt holes just to make ultimately less money than what most coding jobs pay......
Those people do GREAT at coding boot camps and technical training btw.
The saying really doesn't work for "Mr." because the male honorific doesn't change based on marital status. You get you "Mr." just by existing, you don't need to earn it.
Sure, but this is just about the least sexy thing I've ever read. This is the sort of boring, incremental improvement that the world actually builds on, but I'm not sure it's going to attract outrageous amounts of investor capital and make you the hippest new company in the valley.
I would not be shocked if it turns out that in practice ISAs are a money-losing proposition due to all the risks involved, even if they can be an effective way to make education accessible to people. Education being so ridiculously expensive in the US is still a relatively new thing.
> Better than an ISA is an income-dependent loan with some minimum amount that must be paid back regardless of the program outcome.
As for collection, I suggest structuring it as a loan, but with an 'income share' option in the contract. That is: participants are legally getting a loan, but the loan has an option to pay back less via income share. Dont pay? Then just pursue them for the loan.
> But people with high credit scores tend to have better, cheaper options than ISAs. Also, using credit scores for ISAs is... largely missing the point.
The self-selection problem is actually identical to loans. If you offered loans without checking credit score, you would end up with the exact same issue--people with poor credit would jump at the chance, and people with good credit would decline and pay upfront because they can.
What I always wondered was regarding these agreements:
"People aren't used to making these kinds of deals. Do they understand them? Do they want them? Who is going to take them?"
I assumed the attractiveness to the individuals was NOT taking out a loan and folks taking more of a 'long shot' and if it didn't work, things weren't going to work out for everyone.
Also, I took a bootcamp that even with folks paying for the camp / taking personal risk, half those folks had no place there. After one month half the class should have been dis-invited "this isn't your thing". Finding good candidates is hard / IMO unpredictable.
There's a serious incentive problem and I'm not talking about the student. The company put literally nothing into it. A few "lectures" to provide "training" and that was it. No help lining up jobs. No preparation for interviews. The "teacher" had no clue how to teach and anyway the material was useless. Nobody would hire you based on that material. An ISA works well if you get a share of someone else's income and don't have any costs.
> A version of college replacement I'm super interested in:
> Find the smartest and most driven 18 year olds in the world, and give them 'tenure'--say a decade+ of salary, resources to work on whatever they want, and a smart peer group--in exchange for small % of future earnings.
An example contract - https://www.purdue.edu/backaboiler/disclosure/contract.html
There is a sizable portion of individuals who do not complete or utilize their degrees and are thus left with low income, large amounts of debt, and little prospect of paying it off.
ISAs solve this problem.
There should be a strict rule in the contract, that ending it before the 3 years are over will have a pricey consequence, so that you are incentivized to only sign up if you understand the work involved and will not quit after just doing the training.
They also write internal tools as learning projects.
When an artist gets a recording contract they will get an advance and the resources to produce recorded music (eg studio time, a producer). The label will end up owning the masters and get a percentage of sales. Whatever percentage the artists get first has to go towards the label's "costs" being all those services they originally provided (eg studio time) such that an album can make millions before the artist gets paid at all [1]..
Only the very top artists can actually make a living of royalties and sales. Almost all artists have to support themselves by performing. It's also why top artists who support the current system (cough Metallica cough) never talk about performance income. TDhey try to frame music piracy as stealing from artists when the artist almost never gets any of that money.
But why I bring this up is that it seems to bear a lot of similarities with these income sharing arrangements (eg the mismatched goals of the participants). 1[]: https://www.gerryhemingway.com/piracy2.html
I know this is not what you're suggesting, but your post just reminded me of something. Many of those schools offer anywhere from $100 to $3,000 referral bonuses to alumni (or influencers) who refer new students to it. This can be a very perverse incentive.
So if you ever speak to an alumnus of a coding bootcamp, make them believe that someone else already referred you to their bootcamp. They're much more likely to tell you the truth about their experience if they know they can't earn a commission from you.
What was more appalling was the stone faced defense that came from the developer community, Lambda themselves, and enablers who partnered with Lambda who could have run that same math but chose not to. Spending a moment in bootcamp student communities would expose the outcomes of these, and similar practices (changing curriculums midstream, student -> teacher hiring, CIRR's iffy-at-best oversight). Nobody chose to listen.
Seeing Lambda go under, and the general decline of ISAs, is a tremendous net positive. For every 1 success story, there seem to be 99 failures trapped by an ISA or liquidated savings.
Fwiw, that school is still around under "The Bloom Institute of Technology." Sounds familiar as it inches towards for-profit school models.
Adjusted for inflation, it should be $13 now. That fact that the price of college has outpaced inflation by so much is positively criminal. Kids these days are getting screwed sideways.
is there a reason why they can't require some amount of money down (eg. a few thousand dollars), or does that go against the ISA philosophy?
I haven't had to count pennies at the gas pump rather than just filling it up all the way every time, or keep a running tally of what's going into my grocery cart, in many years, but I remember what it was like. $1,000 was a fuckton of money at the time. An unexpected bill for a couple hundred dollars might ruin my whole month, and maybe the next one too.
This was a substantial amount of money for me at that time, but I probably wouldn't have applied for the program had it not been for the ISA. I was unwilling to take on new debt, and I didn't have enough money for an upfront payment. The deposit seemed like a reasonable expenditure to save toward precisely because the ISA showed that the program itself had skin-in-the-game.
I’m talking from experience. There’s one, which I won’t name, roping in kids from South Asia, Africa, and South America and tying them up with ISAs. I wouldn’t call them scummy but don’t feel great about them either.
As an aside, I can’t stand long Twitter threads like this. It’s so ugly and inefficient. Just write a blog post. I know Twitter has a lot of eyeballs and is free and easy to use, but so is Medium or Ghost.
The ISAs also underwent dramatic changes. They now last up to eight years, max out at $42k, and apply to any job, whether or not it's tech. You could attend the program for a few months, drop out once you realize it's a disaster, get a job four years later as a truck driver, and end up on the hook for your full ISA.
Would be interesting to know more details about these indicators.
This is something the VC bean-counters will forever struggle to wrap their minds around. Not everything is about money, even in commerce.
I gotta admit feeling some schadenfreude that people trying to revive indentured servitude end up being out-grifted by their own customers
The ISA's that I'm familiar with don't bind the person to a particular employer, have minimum salaries that are required before the payment is taken out of paychecks, etc. It seems very different than "indentured servitude" and much closer to a loan.
ISAs seem to align incentives between lender and loan taker better than traditional loans, (although as pointed out not perfectly). More income = more money for both. Most people who are getting training/education likely aims to maximize their income in a 1-2 year time frame.
Now, which one is actually the best deal varies from case to case. If you pay more dollars on average in total with an ISA, that'd be expected but hardly the fault of the ISA issuer. That's just an unfortunate side effect of debt and risk calculations that are true across the board.
Payments are higher if you succeeded, but the downside risk is lower.
This is the fundamental tradeoff.
Federal student loans with an income based based repayment plan are free of both those things (fixed maximum repayment period and fixed interest rates at origination.)
By runaway interest, I mean compounding debt, not change of interest rate. If payment on a federal loan is low or non-existent, the debt will increase exponentially over time.
Take for example a student who takes ~50K in debt, but fails to graduate or secure income to pay the annual interest.
With a federal loan, payments may be deferred or reduced, but the debt will continue to increase with time. If not payed off, this will last for the student's life.
With some ISAs, there may be no payments required, and the entirety of the debt disappears after X years.
It just removes some of the visual noise.
The bigger issue is that we organize our writing into paragraphs.
Threadreader doesn't know how to do that.
So reading tweets on it is still a grating experience.
I'd say threadreader doesn't change much here, but it's very good for longer threads that twitter mangles.
You may think I'm being silly, but I'm acting in accordance with my values, as I'm sure you do in situations where I'd disagree with you.
Do copyright concerns disappear when the original has been taken down or edited by the copyright holder?
The only similarity is that you work to pay off a debt. By that definition, car loans, student loans, house loans, credit cards are all "indentured servitude".
Look at it this way: if you had a loan where payments were income-based, and where the loan was forgiven after a certain amount of time, would that be indentured servitude?
ISAs failed because they are a stupid idea that rips off consumers. Most people smart enough to qualify are suave enough to notice this. These exist to take advantage of naive people.
Investors with money like to keep it, and there’s so much risk involved in the process they need to rip you off to make a margin. So they sell you dreams and deliver a worthless product, financed with a novel predatory financing scheme.
(This isn’t a new scam either - certification mills used to do this with CCNA and MCSE certs years ago, except they usually targeted federal funds for displaced workers instead of the convoluted modern bond indenture model)
I do volunteer mentoring as a service project type of thing, and one of the kids I worked with was attracted to one of these. I refocused him to a community college program where for ~$8,000 he has an associates degree and superior skillset. He got a great job and is positioned to further his education if he decides to do so.
The gross promotion of these schemes really affected my view of some of the tech luminaries who shamelessly pumped it.
What is the common goal here?
What was the selection process as to who can join?
How long is the agreement?