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Doesn't it change the incentive structure though? If Lambda only gets paid when students get a job, they are much more incentivized to work towards positive out

Doesn't it change the incentive structure though? If Lambda only gets paid when students get a job, they are much more incentivized to work towards positive outcomes for the student. If they get paid regardless, then they might as well enroll as many people as possible and care much less about their outcomes? I think schools like Lambda have a massive role to play in education, the problem is it seems like the vast majority are predatory ( not saying Lambda is, they seem like one of the more honest ones). But if the financial realities of running them means packaging students into CDO's, i fail to see how market forces won't force them all into predatory practices?

adrianmonk 7y ago
True to some extent, but don't investors need some way to figure out what an ISA is worth when they buy it from a school? Assuming they can get access to the numbers, wouldn't that valuation be based on stuff like graduation rates, placement, and alumni salaries? If so, then if the school ever wants to sell ISAs again, then they have an incentive (at least indirectly) because future years' cash flow will depend on how well they perform on whatever stats ISA buyers look at.
- unlinked_dll 7y ago
  Pardon the sarcasm Investors would never be fooled into purchasing garbage debt made to look great. And banks would never risk it for the biscuit since the government would never bail them out. Another way to look at the incentive structure is that they could be driven by volume and not caliber. It depends on how well investors are able to vet the ISAs and if the ones purchasing them are the ones left holding the bag when it goes up in smoke.
tfehring 7y ago
The entities purchasing the ISAs will rely on Lambda’s success at getting people jobs to determine how much they’re willing to pay. Lambda has exactly the same incentives in the long term regardless of whether it keeps or sells the ISAs.

adrianmonk 7y ago

True to some extent, but don't investors need some way to figure out what an ISA is worth when they buy it from a school? Assuming they can get access to the numbers, wouldn't that valuation be based on stuff like graduation rates, placement, and alumni salaries? If so, then if the school ever wants to sell ISAs again, then they have an incentive (at least indirectly) because future years' cash flow will depend on how well they perform on whatever stats ISA buyers look at.

unlinked_dll 7y ago
Pardon the sarcasm Investors would never be fooled into purchasing garbage debt made to look great. And banks would never risk it for the biscuit since the government would never bail them out. Another way to look at the incentive structure is that they could be driven by volume and not caliber. It depends on how well investors are able to vet the ISAs and if the ones purchasing them are the ones left holding the bag when it goes up in smoke.

tfehring 7y ago

The entities purchasing the ISAs will rely on Lambda’s success at getting people jobs to determine how much they’re willing to pay. Lambda has exactly the same incentives in the long term regardless of whether it keeps or sells the ISAs.