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I find it surprising that they sell their ISAs (it seems to be true based on a quick look at this https://www.theverge.com/2020/2/12/21135134/lambda-school-stud

I find it surprising that they sell their ISAs (it seems to be true based on a quick look at this https://www.theverge.com/2020/2/12/21135134/lambda-school-students-edly-isa-debt-swapping-partnership-shares-investors https://www.theverge.com/2020/2/12/21135134/lambda-school-st...). Doesn't this look bad to prospective students? It implies that they don't think that they'll pay off. Is there a good faith explanation for this?

ec109685 6y ago
I think the charitable explanation is that they needed the funds now versus after the student gets their job.
- Jasper_ 6y ago
  So they're incentivized to inflate their graduation rates to sell off the ISAs to investors who don't know better, since they need the cash now. Investors are left with a bill of goods: ISAs that will never pay out. Add in some securitization and tranches and baby, you've got a 2008 financial crisis goin'!
  - omarhaneef 6y ago
    At this particular point in time, I suggest this is a vote of confidence. This is a new asset class, investors are going to dig deep and understand it. They will certainly have access to more data and analysis than the average student. However, if the government were to start to guarantee the loans and the volume hit an impossible level, and people got used to minimal defaults for 20 years then that would lay the groundwork for the type of disaster you suggest. (I am not affiliated with labda or any of its investors)
vasco 6y ago
Supposedly they want to be teachers and not risk managers, though the whole thing smells fishy.
austenallred 6y ago
The cash to train students needs to come from somewhere. So in Lambda School's case that's either VCs or some other investors. Instead of running the entire school on venture capital, which wouldn't make sense (VCs need a huge return per dollar), we use an advance from investors based on the future value of an ISA to offset the cost. If we work with investors to say that an ISA will be worth $x, we can borrow $x minus interest the same way you would be able to for any other asset. Of course, that amount needs to be repaid. So it's still completely risk-aligned.
- maxerickson 6y ago
  The cash to train students needs to come from somewhere. So in Lambda School's case that's either VCs or some other investors. This makes sense for liquidity, but ultimately the ISAs are what has to provide the funding (or it's not a viable business). As the investment terms improve, the portion of the ISA payout spent on training has to go down. You are correct that the ISAs need to pay out to be an interesting investment, but if you are pricing the ISA to what the investment market will pay instead of what the training costs, it's not exactly a better deal for the students.
  - austenallred 6y ago
    You’re forgetting the student in all of this. At the end of the day the decision maker is the student who decides if it’s a good deal. The financing is all cashflow management behind the scenes that doesn’t really matter.
    - maxerickson 6y ago
      Sure, they can decide if the think the deal is worth it to them or not, but they probably aren't the one with the most information about the training spend and value of the ISA.
      - austenallred 6y ago
        It doesn’t really matter. As a purchaser of x it doesn’t matter to me what it costs to make x so long as I know clearly what x is. A Stanford grad doesn’t know what the marginal cost of their enrollment is.
Grustaf 6y ago
In theory they need to provide value in the long-term if they want to be able to continue selling ISAs.

ec109685 6y ago

I think the charitable explanation is that they needed the funds now versus after the student gets their job.

Jasper_ 6y ago
So they're incentivized to inflate their graduation rates to sell off the ISAs to investors who don't know better, since they need the cash now. Investors are left with a bill of goods: ISAs that will never pay out. Add in some securitization and tranches and baby, you've got a 2008 financial crisis goin'!
- omarhaneef 6y ago
  At this particular point in time, I suggest this is a vote of confidence. This is a new asset class, investors are going to dig deep and understand it. They will certainly have access to more data and analysis than the average student. However, if the government were to start to guarantee the loans and the volume hit an impossible level, and people got used to minimal defaults for 20 years then that would lay the groundwork for the type of disaster you suggest. (I am not affiliated with labda or any of its investors)

vasco 6y ago

Supposedly they want to be teachers and not risk managers, though the whole thing smells fishy.

austenallred 6y ago

The cash to train students needs to come from somewhere. So in Lambda School's case that's either VCs or some other investors. Instead of running the entire school on venture capital, which wouldn't make sense (VCs need a huge return per dollar), we use an advance from investors based on the future value of an ISA to offset the cost. If we work with investors to say that an ISA will be worth $x, we can borrow $x minus interest the same way you would be able to for any other asset. Of course, that amount needs to be repaid. So it's still completely risk-aligned.

maxerickson 6y ago
The cash to train students needs to come from somewhere. So in Lambda School's case that's either VCs or some other investors. This makes sense for liquidity, but ultimately the ISAs are what has to provide the funding (or it's not a viable business). As the investment terms improve, the portion of the ISA payout spent on training has to go down. You are correct that the ISAs need to pay out to be an interesting investment, but if you are pricing the ISA to what the investment market will pay instead of what the training costs, it's not exactly a better deal for the students.
- austenallred 6y ago
  You’re forgetting the student in all of this. At the end of the day the decision maker is the student who decides if it’s a good deal. The financing is all cashflow management behind the scenes that doesn’t really matter.
  - maxerickson 6y ago
    Sure, they can decide if the think the deal is worth it to them or not, but they probably aren't the one with the most information about the training spend and value of the ISA.
    - austenallred 6y ago
      It doesn’t really matter. As a purchaser of x it doesn’t matter to me what it costs to make x so long as I know clearly what x is. A Stanford grad doesn’t know what the marginal cost of their enrollment is.

Grustaf 6y ago

In theory they need to provide value in the long-term if they want to be able to continue selling ISAs.