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The difference isn’t the collateral, a personal loan like a credit card is unsecured. It’s how you calculate the payment. In a loan it doesn’t matter how much

The difference isn’t the collateral, a personal loan like a credit card is unsecured. It’s how you calculate the payment. In a loan it doesn’t matter how much money I make, I owe what I owe. In the proposed equity arrangement I owe a percentage of my income. If I don’t make anything, I don’t owe anything. If I’m the next Musk, I owe billions.

danans 6y ago
> a personal loan like a credit card is unsecured. That's just another way of saying 0 collateral. > In the proposed equity arrangement I owe a percentage of my income. If I don’t make anything, I don’t owe anything I agree the calculation is different, but I doubt there is a lender that isn't going to demand the return of their principal at the least. Depending on the enforceability of such a contract (questionable and depends on the legal teeth they have in the respective jurisdictions) and the likelihood of default, it would significantly alter the risk profile.
- bradleyjg 6y ago
  It seems like you don’t understand the difference between debt and equity.
  - danans 6y ago
    I do understand the difference, but in modern societies, you can't purchase (or sell) equity in a human being - that's called indentured servitude - and despite our society having many exploitative employment arrangements, we don't allow total or partial sale of oneself. If you want to take an "investment" of this sort, it would have to taken by an LLC or similar entity, which is by definition isolated from personal liability and vice versa.
- ghaff 6y ago
  >I agree the calculation is different, but I doubt there is a lender that isn't going to demand the return of their principal at the least. You win some, you lose some. Presumably the person/organization making the loan has calculated that the upside pays for the students who end up paying nothing. To the sibling comment about debt and equity, they're not necessarily as different as some assume. In this case, if I called it debt with a payback schedule based on ability to pay up to some cap, does that make it into something fundamentally different just because it's unusual?
  - bradleyjg 6y ago
    There are hybrids all over the place. Preferred stock is a classic example. But there’s still a basic framework before you get into the messy middle. Taxonomies are a useful technology, calling everything a loan obscures more than it clarifies.
    - ghaff 6y ago
      Also convertibles. And I don't disagree even though I had a long ago finance professor who hammered on the point that a lot of financial instruments weren't necessarily that distinct from each other just because they have different names. But, yes, we can generalize about the distinct characteristics of normal debt and normal equity.
ghaff 6y ago
>I owe what I owe Which may depend on an external factor if say it's a variable rate loan pegged to the prime. At some level, this is just using a different formula to determine the payment.

danans 6y ago

> a personal loan like a credit card is unsecured. That's just another way of saying 0 collateral. > In the proposed equity arrangement I owe a percentage of my income. If I don’t make anything, I don’t owe anything I agree the calculation is different, but I doubt there is a lender that isn't going to demand the return of their principal at the least. Depending on the enforceability of such a contract (questionable and depends on the legal teeth they have in the respective jurisdictions) and the likelihood of default, it would significantly alter the risk profile.

bradleyjg 6y ago
It seems like you don’t understand the difference between debt and equity.
- danans 6y ago
  I do understand the difference, but in modern societies, you can't purchase (or sell) equity in a human being - that's called indentured servitude - and despite our society having many exploitative employment arrangements, we don't allow total or partial sale of oneself. If you want to take an "investment" of this sort, it would have to taken by an LLC or similar entity, which is by definition isolated from personal liability and vice versa.
ghaff 6y ago
>I agree the calculation is different, but I doubt there is a lender that isn't going to demand the return of their principal at the least. You win some, you lose some. Presumably the person/organization making the loan has calculated that the upside pays for the students who end up paying nothing. To the sibling comment about debt and equity, they're not necessarily as different as some assume. In this case, if I called it debt with a payback schedule based on ability to pay up to some cap, does that make it into something fundamentally different just because it's unusual?
- bradleyjg 6y ago
  There are hybrids all over the place. Preferred stock is a classic example. But there’s still a basic framework before you get into the messy middle. Taxonomies are a useful technology, calling everything a loan obscures more than it clarifies.
  - ghaff 6y ago
    Also convertibles. And I don't disagree even though I had a long ago finance professor who hammered on the point that a lot of financial instruments weren't necessarily that distinct from each other just because they have different names. But, yes, we can generalize about the distinct characteristics of normal debt and normal equity.

ghaff 6y ago

>I owe what I owe Which may depend on an external factor if say it's a variable rate loan pegged to the prime. At some level, this is just using a different formula to determine the payment.