15 ms·

Why income share agreements did not work out

276 points by jger15 5y ago

tempnow987 5y ago
The adverse selection issues seemed glaring to me with ISA's - they would appeal tremendously for folks without great options. For folks with good academic career success looking to transition less so?
- nickff 5y ago
  ISAs are also appealing to people pursuing degrees without an intent to become high earners, such as those looking to 'broaden their horizons' or 'earn their Mr./Mrs.'.
  - gruez 5y ago
    >'earn their Mr./Mrs.'. 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.
    - nickff 5y ago
      I was just trying to avoid the appearance of misogyny; though I know some men who have changed their last names to their wife's, and I'm not sure how else to quickly allude to that.
- legitster 5y ago
  Also, people often forget there are plenty of good financing options available for low-income students. I got free tuition at a well regarded state university. 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.
  - namelessoracle 5y ago
    the main target for ISA's seem to be people needing career changes in my experience. (at least for people doing it and having any kind of actual success from it) 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.
    - tempnow987 5y ago
      Yeah, this is the market I'm talking about. For example, say I'm pretty successful in another field (medicine / accounting / law) - earning maybe 500K. Been coding on the side since I was young, enjoy it. I'd probably be a "success" in some ISA type school (past good history with testing / studying etc). But the income split is not appealing, I'd be chasing ultimately a more management level position longer term tech side. So I'll select away from ISA model. 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.)
      - namelessoracle 5y ago
        Thing is those people might not have struggled educationally at all. The ex math teacher i talked about? Made 4.0 in everything. Didnt even owe student loans because they had grants/scholarships. The ex laywers all did just fine educationally. (and their massive debts probably didnt help their credit scores) 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.
gruez 5y ago
>First, the lack of skin in the game leads to very poor participant behavior. 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?
- eropple 5y ago
  My understanding is that a lot of the folks you'd want to target for something like this don't have appreciable funds to put down in the first place.
- majormajor 5y ago
  Plans like these are generally intended to help precisely those people who don't have a few thousand dollars lying around. (Heck, even many traditional students taking out loans would be hard pressed to put a few thousand dollars down instead of taking out a student loan. That's a lot of money to most people in the US.)
- ratzkewatzke 5y ago
  I think that the explanation about credit scores probably applies here; much as people with good credit scores had better options than ISAs, people with some cash to put up do as well.
- cribbles 5y ago
  Back in 2015, when this type of thing was still novel, I participated in an ISA program that required a $3,000 deposit. It was refundable if you failed a (demonstrably) good-faith effort to applying for jobs, or rolled into the payment once you landed one. 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.
- brimble 5y ago
  "A few thousand dollars" is an absolute shitload of money to most people who aren't riding the computer programming bubble, and especially young people. It may as well be $50,000 for how hard it would be for them to come up with without taking out a loan, the same way I'm not any more likely to be able to jump 20 feet in the air than I am to be able to jump to the moon. 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.
nickff 5y ago
I wish this were a short blog-post, as we need more of those, but it seems like a clear and incisive analysis of the issues facing ISAs.
- actually_a_dog 5y ago
  It is a short blog post. HN is just allergic to posting Threadreader links to things like this for some reason. I don't understand what's so terrible about posting an easy to read version of the exact same content, rather than having to deal with Twitter's terrible UI for such content. https://threadreaderapp.com/thread/1505923007096700939.html https://threadreaderapp.com/thread/1505923007096700939.html
  - nickff 5y ago
    I would prefer it to be posted on a blog, but can't support ThreadReader. It seems like ThreadReader is violating copyright, unless they were licensed/authorized by the author or Twitter.
    - actually_a_dog 5y ago
      I guess you don't use archive sites then, either, right? Or search engines? Google creates an unlicensed derived work (their index) based on the sites they crawl. That seems like a silly justification. There's no way Twitter isn't aware of what ThreadReader is up to. If Twitter cared enough, all it would probably take is a cease and desist to stop ThreadReader for good.
      - nickff 5y ago
        I avoid using archive sites when the original is still live (and unedited). With respect to Google and other search engines, I usually visit the website providing the snippet, and have issues with their derivations/plagarism. 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.
daenz 5y ago
Can someone add some of the missing context about the ISA experiment mentioned in the tweet thread?
- phphphphp 5y ago
  it’s a colloquialism, “the experiment” refers to the collective belief that ISAs had potential risk to revolutionise funding for education etc.
  - matsemann 5y ago
    And ISA being..?
    - eatonphil 5y ago
      It's in the title of this post: income share agreement.
      - matsemann 5y ago
        And that explains nothing of the concept unless you already know what it means. Share income in what context? Other people answered it, thankfully.
    - phphphphp 5y ago
      Income Sharing Agreement, I.e: what bloomtech (fka Lambda) use. No payment upfront, but the institution gets a cut of income above $x until the repayment amount is met.
    - shagie 5y ago
      An an article about them - https://www.nerdwallet.com/article/loans/student-loans/income-share-agreements-what-students-should-know-before-borrowing https://www.nerdwallet.com/article/loans/student-loans/incom... An example contract - https://www.purdue.edu/backaboiler/disclosure/contract.html https://www.purdue.edu/backaboiler/disclosure/contract.html
- 5y ago
kevingadd 5y ago
It's also worth considering why a participant might "behave poorly". Even if you select for "good people", those in circumstances bad enough to need an ISA are probably more likely to hit harsh times in the future and simply be unable to repay the loan - they suffer from generational poverty, for example, which means if a close loved one becomes injured or badly ill they may have no choice but to abandon their education and work multiple low wage jobs to support their family. At that point the ISA investment is wasted because they're unlikely to finish that education anytime soon or be able to convert it into a high-wage job. People in poverty situations also often have worse health, which means you are dealing with higher odds of the participant being unable to pay it back because they get sick, or die. 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.
duxup 5y ago
I'm making some assumptions here that the ISA context is free coding camp like education for a cut of the participant's future income: 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.
legitster 5y ago
Yeah, I remember reading about these when they launched and on paper they seemed like such a bad deal. The only group of people who would benefit from them over traditional loans are people who know they would never be able to pay off the equivalent debt. > 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.
- deleted 5y ago
  [deleted]
- Johnny555 5y ago
  credit score is the number one determinant which one will be more likely to get into an accident 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.
  - legitster 5y ago
    The implication the person was giving is that people who have debt problems are likely people who struggle with decision making, with lots more downstream effects than just credit. So in an unusual way, credit could almost be an approximation of EQ.
actually_a_dog 5y ago
https://threadreaderapp.com/thread/1505923007096700939.html https://threadreaderapp.com/thread/1505923007096700939.html
Gunax 5y ago
The key takeaway: > 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.
gnicholas 5y ago
It would be interesting if you could create incentives to prod folks in the right direction and align incentives. For example, you could reward high-earning students by giving them a cut of income generated from students who follow. Or feature successful students in advertising materials in a way that makes them proud or gives them more career options. Something akin to a Dean's List.
- Step888 5y ago
  > For example, you could reward high-earning students by giving them a cut of income generated from students who follow. 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.
vyrotek 5y ago
Austen from Bloom (Lambda School) had some interesting thoughts on this as well. https://twitter.com/Austen/status/1506072723302207494 https://twitter.com/Austen/status/1506072723302207494
- deleted 5y ago
  [deleted]
- castlecrasher2 5y ago
  >We found indicators far more predictive than FICO. Would be interesting to know more details about these indicators.
- sandofsky 5y ago
  His actions speak louder than his words. Along with the name change, the company pivoted to pushing high interest (12.5%) loans on students. 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.
cjensen 5y ago
Economics has a lot to say about how bad an idea sharecropping is. (This is apart from the obvious racism/slavery aspect of sharecropping in the southern US). 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.
- TulliusCicero 5y ago
  I think it’s potentially attractive to people for two reasons. One is that it’s “safer” than a traditional loan: if the education doesn’t work out and you don’t get a good job, well, you only have to pay a percentage of your income, so your low wage job is still okay. Or maybe it’s contingent on a certain type of job, so you don’t have to pay anything. 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.
- missedthecue 5y ago
  Sorry I don't see why this is true? If you're in an income sharing agreement, the only way for you to make more money is to work more, but this is how it works for people who don't have income sharing agreements too. The motivation isn't changed, one person just has more take home pay than the other person. (And if that person has a loan instead of an income sharing agreement, the disposable income between the two individuals are identical)
ridaj 5y ago
> adverse selection problems I gotta admit feeling some schadenfreude that people trying to revive indentured servitude end up being out-grifted by their own customers
- TulliusCicero 5y ago
  Modest income sharing as an alternative to loans isn’t any more “indentured servitude” than taxes are.
  - dragonwriter 5y ago
    ISA’s weren’t modest; they were heavier share than income-based student loan options.
    - s1artibartfast 5y ago
      But they are also free of runaway interest and lifelong debt. Payments are higher if you succeeded, but the downside risk is lower. This is the fundamental tradeoff.
      - dragonwriter 5y ago
        > But they are also free of runaway interest and lifelong debt 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.)
        s1artibartfast 5y ago
        Federal loans have maximum repayment periods of 10-30 years, but that does not mean the loan is forgiven at the end of this period. If you fail to make regular and complete payments, the loan can persist for the entirety of your life. 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.
didip 5y ago
I am missing a lot of context. What is the common goal here? What was the selection process as to who can join? How long is the agreement?
ipaddr 5y ago
You could see this being an awful business to work in. Your clients need to be unicorns in many ways. The type of person who would use this is not the type of client the business could succeed with.
999900000999 5y ago
Good riddance, when I first heard about this I was appalled. 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.
- soneca 5y ago
  > ”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” 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.
  - 999900000999 5y ago
    As far as I'm concerned, that's more than enough to at least give someone an interview 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.
twblalock 5y ago
It's nice to think there is a large untapped market of people who are ignored by traditional lenders, who have old-fashioned ways of measuring applicants and overlook people who don't fit the traditional mould. 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.
- danielmarkbruce 5y ago
  > It's nice to think there is a large untapped market of people who are ignored by traditional lenders, who have old-fashioned ways of measuring applicants and overlook people who don't fit the traditional mould. 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.
SkipperCat 5y ago
I think Europe has an ISA program for higher ed. They call it "free college" and the ISA kicks in via a progressive tax system. Funny (sad funny) how when it is put into the private sector in America it basically collapses.
- xondono 5y ago
  The main difference is that Europe education also comes with thousand of strings attached. 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).
  - igorkraw 5y ago
    "Europe" doesn't exist for these purposes, the countries vary wildly, with the only thing that stays constant being that it won't by default saddle you with crushing student debt like the US. The UK has been steadily increasing fees, while e.g. Germany, Norway and Denmark pay you for studying, with the German voters successfully lobbying against attempts to introduce fees while I was studying. The German university system at least is also quite robust and egalitarian in the sense that there are many avenues into university and it is truly free - whole also being high quality (in my opinion). Where Germany is comparatively behind I'd secondary education - the three tier system sucks and I can't wait until the Finnish system properly takes over this continent. 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)
- throwawayboise 5y ago
  Europe's "free" college is only available to those with the aptitude to likely be successful. Kids are separated into college-bound and vocational educational tracks somewhere around the middle school age.
s17n 5y ago
If you are actually producing high demand graduates, you will be able to make plenty of money by charging recruiters / hiring companies for access to them. None of these programs use this model for a simple reason, they are not actually producing high demand graduates. 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.
- soneca 5y ago
  Your criteria for “high demand graduates” is getting into a “FAMGA job or similar”?
  - s17n 5y ago
    The criteria is that they could get a job at FAMGA, not that they necessarily choose to, but yes. I honestly have no idea if you're suggesting that's too high a bar or too low a bar.
- rahimnathwani 5y ago
  Why would FAMGA companies need to pay the school? 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?
  - xmprt 5y ago
    > 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.
    - rahimnathwani 5y ago
ngngngng 5y ago
> Better than an ISA is an income-dependent loan with some minimum amount that must be paid back regardless of the program outcome. 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.
safdahfslh23s 5y ago
Personally, I'm sad that this model seems to not pan out. I'm a successful bootcamp story - I graduated from App Academy about 7 years ago and have been working as software engineer since. My closest friends were all successful and all work at companies that you've heard of. The ISA model was key to me enrolling as I was skeptical of bootcamps. I was happy to pay if it worked about, but wanted to hedge my bet in case I enrolled in one of the many of the unscrupulous bootcamps that didn't actually teach anything. 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.
- np_tedious 5y ago
  I've worked with a few AppAcademy grads. Was pretty impressed by most. It certainly seems like one of the better ones. Congrats on your success
cglee 5y ago
For the past 6 years, I've operated a software engineering school[1] that uses ISAs and I have some thoughts about them. There are two main stated benefits to using ISAs (there are others, but those seem overblown): a) commission based pricing (aka, incentive alignment pricing) b) deferred payment Of the two, imo the second is by far the most important thing for students. To the first bullet, I don't personally find commission based pricing to be all that incentive aligning. For example, it's not uncommon for me to advise someone to take a much lower offer because it seemed like a better long-term opportunity. This is in line with Sean's observation that quality education outcomes is difficult to reduce to salary numbers alone. 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 There are many other student-friendly benefits of an ISA-later model, but I'll stop here as this comment is getting long. [1] launchschool.com
- nyanpasu64 5y ago
  https://launchschool.com/deferred#cite-note-3 https://launchschool.com/deferred#cite-note-3 > 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.
bachmeier 5y ago
After having seen people enter into ISAs (not this one) I'd avoid them like the plague. They might be okay for a traditional university. You could do the math and see what it says. For other institutions it's a scam. 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.
simow 5y ago
[flagged]
omginternets 5y ago
>Also, participants judge educational success in many ways that don't trivially reduce to "make more money". This is something the VC bean-counters will forever struggle to wrap their minds around. Not everything is about money, even in commerce.
minimaxir 5y ago
This tweet thread was likely a subtweet of a controversial Sam Altman tweet the day before: https://twitter.com/sama/status/1505599701864701954 https://twitter.com/sama/status/1505599701864701954 > 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.
Spooky23 5y ago
This reminds me of the vapid, self-serving farewell letters you would find on fuckedcompany.com during the dotcom implosion. 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.
hogehoge51 5y ago
Australia’s public universities (that is most of them) basically operate on a subsidised ISA built into the tax system called HECS. It’s been going for almost 30 years and was started to double the rate of higher education participation, which was happened. There are huge problems with the Australian university system, but I’d say HECS is one of the lesser problems.
- dghlsakjg 5y ago
  If you read the tweet thread this HECS model solves a couple of the big issues. There is no adverse selection if the scheme is open to all at any institution, and there is no legal and regulatory risk since, I believe, the repayment of the loan is legally mandated through payroll rather than being subject to a private school chasing students around in courts.
  - hogehoge51 5y ago
    Yes, for most repayment is via mandatory payroll withholding tax. If you fall outside of that system it’s also included in your annual tax return.
deleted 5y ago
[deleted]
rossdavidh 5y ago
Another adverse selection problem: the education programs that should be using ISA's are the ones where there is a high risk that it will not increase your earning potential. For example, small liberal arts colleges. They are probably the least likely to do so, for that very reason.
groby_b 5y ago
Also a good reason: We as a society decided indentured servitude is not a concept we'd like to pursue.
- beej71 5y ago
  Indentured servitude: nothing to do with ISAs. 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?
indymike 5y ago
My daughter did an ISA for a six month digital marketing bootcamp. Terms were a capped ($40K total payback) 1/2 of income over $40K for 5 years, 0% interest. 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.
- baobabKoodaa 5y ago
  > 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. That's 50% increase in gross income, not net income.
  - indymike 5y ago
    Minor nit $20k is the gross income so $15K is the net. $15k is 50% of $30k.
    - baobabKoodaa 5y ago
      No. $20k is the gross income. Then you deduct ISA payment $5k and you get to $15k. Then you deduct taxes and you get to X. X is the net income. X is lower than $15k. Therefore, the net income does not increase by 50% in this example. The net income increases much less than 50%.
- sokoloff 5y ago
  Her taxes likely went up by $2400 or so (plus whatever the state income tax on $20000 incremental is) and she paid $5K to the ISA. 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.
ransom1538 5y ago
If you are out there wanting to learn - checkout a local community college. You can transfer quickly, easily and finish up the last two years at almost any university you want (UCs, Standford, Caltech, CSU, etc). A high proportion of students drop out of these harder universities in the first two years anyway - so they have room. I took a few courses there to save cash - college professors in my classes taught at Berkley anyway and would use the same material. "Enrollment Fee: $31 per unit" - this is INSANE to not take advantage of this. The courses DIRECTLY transfer. Lambda school (or whatever fake bootcamp crap) credits have no transfer ability. https://www.deanza.edu/ https://www.deanza.edu/
- beej71 5y ago
  De Anza was great. When I went, it cost $6 per unit. I took waaaay more credits than I was able to transfer, but I learned soooo much. 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.
jmyeet 5y ago
I wonder if you can apply the lessons learned here to, say, various creative fields, most notably producing music and writing books. 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 https://www.gerryhemingway.com/piracy2.html
Traster 5y ago
If you want to see ISAs in practice, a very close thing to look at is the UK student loan programme. 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.
- lmm 5y ago
  By living in a country you "sign a blank cheque" for the government to tax you as it sees fit, sort of. "Tuition fees" were always a graduate tax by the back door. This kind of thing goes back to Thatcher looting the GCHQ pension fund back in the '80s. I would say "don't make a "contract" with the government", but even if you don't have a "contract" they can still decide they want to take your stuff.
  - Traster 5y ago
    Here's a kicker - you actually don't have to live in the country for you to still need to pay back the loan.
j-bos 5y ago
I agree with the thread as a reflection of the industry. Still, as an individual the results bum me out because I'm now getting paid to develop software in a warm dry building thanks to the low risk of an ISA. So why ISAs clearly have issues, the safety they provide is amazing for someone with limited means.
sholladay 5y ago
The middleman is going to get paid one way or another. My main issue with ISAs is that they often take an excessively high percentage of your income and/or for too long a period. A lot of them are structured as if an ongoing service is being provided. 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.
fellellor 5y ago
This is a one sided thread not taking into account the bad behaviour by the boot camps themselves. There are plenty who just point their “students” to the Odin Project and go, here’s your reading material. Then they pair untrained kids with each other and call it a day. Where is their 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.
janandonly 5y ago
Why not simply hire someone on a 3-year contract with the understanding that the first x months will be paid for but spent in learning a new skill and the other x months will be spent in earning back the course + paid hours? 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.
- pas 5y ago
  EPAM did this in Hungary for example. A friend went through this. (The training was a lot of Java classes/courses, pretty in depth.)
  - gwbas1c 5y ago
    They put their projects on their resumes. I used to work with a lot of EPAM developers, they were all excellent. They also write internal tools as learning projects.
dogman144 5y ago
I remember running the notional internal rate of return/IRR on an ISA for a bootcamp that did them and was appalled. Payday loans under a different name, wrapped up in good intentions and signaling. 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.
dredmorbius 5y ago
https://threadreaderapp.com/thread/1505923007096700939.html https://threadreaderapp.com/thread/1505923007096700939.html
dredmorbius 5y ago
Wikipedia's article on income-share agreements, for those unfamiliar with the concept: https://en.wikipedia.org/wiki/Income_share_agreement https://en.wikipedia.org/wiki/Income_share_agreement

276 points by jger15 5y ago

The adverse selection issues seemed glaring to me with ISA's - they would appeal tremendously for folks without great options. For folks with good academic career success looking to transition less so?

nickff 5y ago
ISAs are also appealing to people pursuing degrees without an intent to become high earners, such as those looking to 'broaden their horizons' or 'earn their Mr./Mrs.'.
- gruez 5y ago
  >'earn their Mr./Mrs.'. 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.
  - nickff 5y ago
    I was just trying to avoid the appearance of misogyny; though I know some men who have changed their last names to their wife's, and I'm not sure how else to quickly allude to that.
legitster 5y ago
Also, people often forget there are plenty of good financing options available for low-income students. I got free tuition at a well regarded state university. 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.
- namelessoracle 5y ago
  the main target for ISA's seem to be people needing career changes in my experience. (at least for people doing it and having any kind of actual success from it) 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.
  - tempnow987 5y ago
    Yeah, this is the market I'm talking about. For example, say I'm pretty successful in another field (medicine / accounting / law) - earning maybe 500K. Been coding on the side since I was young, enjoy it. I'd probably be a "success" in some ISA type school (past good history with testing / studying etc). But the income split is not appealing, I'd be chasing ultimately a more management level position longer term tech side. So I'll select away from ISA model. 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.)
    - namelessoracle 5y ago
      Thing is those people might not have struggled educationally at all. The ex math teacher i talked about? Made 4.0 in everything. Didnt even owe student loans because they had grants/scholarships. The ex laywers all did just fine educationally. (and their massive debts probably didnt help their credit scores) 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.

gruez 5y ago

>First, the lack of skin in the game leads to very poor participant behavior. 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?

eropple 5y ago
My understanding is that a lot of the folks you'd want to target for something like this don't have appreciable funds to put down in the first place.
majormajor 5y ago
Plans like these are generally intended to help precisely those people who don't have a few thousand dollars lying around. (Heck, even many traditional students taking out loans would be hard pressed to put a few thousand dollars down instead of taking out a student loan. That's a lot of money to most people in the US.)
ratzkewatzke 5y ago
I think that the explanation about credit scores probably applies here; much as people with good credit scores had better options than ISAs, people with some cash to put up do as well.
cribbles 5y ago
Back in 2015, when this type of thing was still novel, I participated in an ISA program that required a $3,000 deposit. It was refundable if you failed a (demonstrably) good-faith effort to applying for jobs, or rolled into the payment once you landed one. 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.
brimble 5y ago
"A few thousand dollars" is an absolute shitload of money to most people who aren't riding the computer programming bubble, and especially young people. It may as well be $50,000 for how hard it would be for them to come up with without taking out a loan, the same way I'm not any more likely to be able to jump 20 feet in the air than I am to be able to jump to the moon. 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.

nickff 5y ago

I wish this were a short blog-post, as we need more of those, but it seems like a clear and incisive analysis of the issues facing ISAs.

actually_a_dog 5y ago
It is a short blog post. HN is just allergic to posting Threadreader links to things like this for some reason. I don't understand what's so terrible about posting an easy to read version of the exact same content, rather than having to deal with Twitter's terrible UI for such content. https://threadreaderapp.com/thread/1505923007096700939.html https://threadreaderapp.com/thread/1505923007096700939.html
- nickff 5y ago
  I would prefer it to be posted on a blog, but can't support ThreadReader. It seems like ThreadReader is violating copyright, unless they were licensed/authorized by the author or Twitter.
  - actually_a_dog 5y ago
    I guess you don't use archive sites then, either, right? Or search engines? Google creates an unlicensed derived work (their index) based on the sites they crawl. That seems like a silly justification. There's no way Twitter isn't aware of what ThreadReader is up to. If Twitter cared enough, all it would probably take is a cease and desist to stop ThreadReader for good.
    - nickff 5y ago
      I avoid using archive sites when the original is still live (and unedited). With respect to Google and other search engines, I usually visit the website providing the snippet, and have issues with their derivations/plagarism. 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.

daenz 5y ago

Can someone add some of the missing context about the ISA experiment mentioned in the tweet thread?

phphphphp 5y ago
it’s a colloquialism, “the experiment” refers to the collective belief that ISAs had potential risk to revolutionise funding for education etc.
- matsemann 5y ago
  And ISA being..?
  - eatonphil 5y ago
    It's in the title of this post: income share agreement.
    - matsemann 5y ago
      And that explains nothing of the concept unless you already know what it means. Share income in what context? Other people answered it, thankfully.
  - phphphphp 5y ago
    Income Sharing Agreement, I.e: what bloomtech (fka Lambda) use. No payment upfront, but the institution gets a cut of income above $x until the repayment amount is met.
  - shagie 5y ago
    An an article about them - https://www.nerdwallet.com/article/loans/student-loans/income-share-agreements-what-students-should-know-before-borrowing https://www.nerdwallet.com/article/loans/student-loans/incom... An example contract - https://www.purdue.edu/backaboiler/disclosure/contract.html https://www.purdue.edu/backaboiler/disclosure/contract.html
5y ago

kevingadd 5y ago

It's also worth considering why a participant might "behave poorly". Even if you select for "good people", those in circumstances bad enough to need an ISA are probably more likely to hit harsh times in the future and simply be unable to repay the loan - they suffer from generational poverty, for example, which means if a close loved one becomes injured or badly ill they may have no choice but to abandon their education and work multiple low wage jobs to support their family. At that point the ISA investment is wasted because they're unlikely to finish that education anytime soon or be able to convert it into a high-wage job. People in poverty situations also often have worse health, which means you are dealing with higher odds of the participant being unable to pay it back because they get sick, or die. 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.

duxup 5y ago

I'm making some assumptions here that the ISA context is free coding camp like education for a cut of the participant's future income: 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.

legitster 5y ago

Yeah, I remember reading about these when they launched and on paper they seemed like such a bad deal. The only group of people who would benefit from them over traditional loans are people who know they would never be able to pay off the equivalent debt. > 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.

deleted 5y ago
[deleted]
Johnny555 5y ago
credit score is the number one determinant which one will be more likely to get into an accident 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.
- legitster 5y ago
  The implication the person was giving is that people who have debt problems are likely people who struggle with decision making, with lots more downstream effects than just credit. So in an unusual way, credit could almost be an approximation of EQ.

actually_a_dog 5y ago

https://threadreaderapp.com/thread/1505923007096700939.html https://threadreaderapp.com/thread/1505923007096700939.html

Gunax 5y ago

The key takeaway: > 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.

gnicholas 5y ago

It would be interesting if you could create incentives to prod folks in the right direction and align incentives. For example, you could reward high-earning students by giving them a cut of income generated from students who follow. Or feature successful students in advertising materials in a way that makes them proud or gives them more career options. Something akin to a Dean's List.

Step888 5y ago
> For example, you could reward high-earning students by giving them a cut of income generated from students who follow. 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.

vyrotek 5y ago

Austen from Bloom (Lambda School) had some interesting thoughts on this as well. https://twitter.com/Austen/status/1506072723302207494 https://twitter.com/Austen/status/1506072723302207494

deleted 5y ago
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castlecrasher2 5y ago
>We found indicators far more predictive than FICO. Would be interesting to know more details about these indicators.
sandofsky 5y ago
His actions speak louder than his words. Along with the name change, the company pivoted to pushing high interest (12.5%) loans on students. 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.

cjensen 5y ago

Economics has a lot to say about how bad an idea sharecropping is. (This is apart from the obvious racism/slavery aspect of sharecropping in the southern US). 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.

TulliusCicero 5y ago
I think it’s potentially attractive to people for two reasons. One is that it’s “safer” than a traditional loan: if the education doesn’t work out and you don’t get a good job, well, you only have to pay a percentage of your income, so your low wage job is still okay. Or maybe it’s contingent on a certain type of job, so you don’t have to pay anything. 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.
missedthecue 5y ago
Sorry I don't see why this is true? If you're in an income sharing agreement, the only way for you to make more money is to work more, but this is how it works for people who don't have income sharing agreements too. The motivation isn't changed, one person just has more take home pay than the other person. (And if that person has a loan instead of an income sharing agreement, the disposable income between the two individuals are identical)

ridaj 5y ago

> adverse selection problems I gotta admit feeling some schadenfreude that people trying to revive indentured servitude end up being out-grifted by their own customers

TulliusCicero 5y ago
Modest income sharing as an alternative to loans isn’t any more “indentured servitude” than taxes are.
- dragonwriter 5y ago
  ISA’s weren’t modest; they were heavier share than income-based student loan options.
  - s1artibartfast 5y ago
    But they are also free of runaway interest and lifelong debt. Payments are higher if you succeeded, but the downside risk is lower. This is the fundamental tradeoff.
    - dragonwriter 5y ago
      > But they are also free of runaway interest and lifelong debt 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.)
      - s1artibartfast 5y ago
        Federal loans have maximum repayment periods of 10-30 years, but that does not mean the loan is forgiven at the end of this period. If you fail to make regular and complete payments, the loan can persist for the entirety of your life. 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.

didip 5y ago

I am missing a lot of context. What is the common goal here? What was the selection process as to who can join? How long is the agreement?

ipaddr 5y ago

You could see this being an awful business to work in. Your clients need to be unicorns in many ways. The type of person who would use this is not the type of client the business could succeed with.

999900000999 5y ago

Good riddance, when I first heard about this I was appalled. 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.

soneca 5y ago
> ”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” 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.
- 999900000999 5y ago
  As far as I'm concerned, that's more than enough to at least give someone an interview 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.

twblalock 5y ago

It's nice to think there is a large untapped market of people who are ignored by traditional lenders, who have old-fashioned ways of measuring applicants and overlook people who don't fit the traditional mould. 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.

danielmarkbruce 5y ago
> It's nice to think there is a large untapped market of people who are ignored by traditional lenders, who have old-fashioned ways of measuring applicants and overlook people who don't fit the traditional mould. 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.

SkipperCat 5y ago

I think Europe has an ISA program for higher ed. They call it "free college" and the ISA kicks in via a progressive tax system. Funny (sad funny) how when it is put into the private sector in America it basically collapses.

xondono 5y ago
The main difference is that Europe education also comes with thousand of strings attached. 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).
- igorkraw 5y ago
  "Europe" doesn't exist for these purposes, the countries vary wildly, with the only thing that stays constant being that it won't by default saddle you with crushing student debt like the US. The UK has been steadily increasing fees, while e.g. Germany, Norway and Denmark pay you for studying, with the German voters successfully lobbying against attempts to introduce fees while I was studying. The German university system at least is also quite robust and egalitarian in the sense that there are many avenues into university and it is truly free - whole also being high quality (in my opinion). Where Germany is comparatively behind I'd secondary education - the three tier system sucks and I can't wait until the Finnish system properly takes over this continent. 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)
throwawayboise 5y ago
Europe's "free" college is only available to those with the aptitude to likely be successful. Kids are separated into college-bound and vocational educational tracks somewhere around the middle school age.

s17n 5y ago

If you are actually producing high demand graduates, you will be able to make plenty of money by charging recruiters / hiring companies for access to them. None of these programs use this model for a simple reason, they are not actually producing high demand graduates. 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.

soneca 5y ago
Your criteria for “high demand graduates” is getting into a “FAMGA job or similar”?
- s17n 5y ago
  The criteria is that they could get a job at FAMGA, not that they necessarily choose to, but yes. I honestly have no idea if you're suggesting that's too high a bar or too low a bar.
rahimnathwani 5y ago
Why would FAMGA companies need to pay the school? 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?
- xmprt 5y ago
  > 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.
  - rahimnathwani 5y ago

ngngngng 5y ago

> Better than an ISA is an income-dependent loan with some minimum amount that must be paid back regardless of the program outcome. 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.

safdahfslh23s 5y ago

Personally, I'm sad that this model seems to not pan out. I'm a successful bootcamp story - I graduated from App Academy about 7 years ago and have been working as software engineer since. My closest friends were all successful and all work at companies that you've heard of. The ISA model was key to me enrolling as I was skeptical of bootcamps. I was happy to pay if it worked about, but wanted to hedge my bet in case I enrolled in one of the many of the unscrupulous bootcamps that didn't actually teach anything. 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.

np_tedious 5y ago
I've worked with a few AppAcademy grads. Was pretty impressed by most. It certainly seems like one of the better ones. Congrats on your success

cglee 5y ago

For the past 6 years, I've operated a software engineering school[1] that uses ISAs and I have some thoughts about them. There are two main stated benefits to using ISAs (there are others, but those seem overblown): a) commission based pricing (aka, incentive alignment pricing) b) deferred payment Of the two, imo the second is by far the most important thing for students. To the first bullet, I don't personally find commission based pricing to be all that incentive aligning. For example, it's not uncommon for me to advise someone to take a much lower offer because it seemed like a better long-term opportunity. This is in line with Sean's observation that quality education outcomes is difficult to reduce to salary numbers alone. 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 There are many other student-friendly benefits of an ISA-later model, but I'll stop here as this comment is getting long. [1] launchschool.com

nyanpasu64 5y ago
https://launchschool.com/deferred#cite-note-3 https://launchschool.com/deferred#cite-note-3 > 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.

bachmeier 5y ago

After having seen people enter into ISAs (not this one) I'd avoid them like the plague. They might be okay for a traditional university. You could do the math and see what it says. For other institutions it's a scam. 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.

simow 5y ago

[flagged]

omginternets 5y ago

>Also, participants judge educational success in many ways that don't trivially reduce to "make more money". This is something the VC bean-counters will forever struggle to wrap their minds around. Not everything is about money, even in commerce.

minimaxir 5y ago

This tweet thread was likely a subtweet of a controversial Sam Altman tweet the day before: https://twitter.com/sama/status/1505599701864701954 https://twitter.com/sama/status/1505599701864701954 > 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.

Spooky23 5y ago

This reminds me of the vapid, self-serving farewell letters you would find on fuckedcompany.com during the dotcom implosion. 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.

hogehoge51 5y ago

Australia’s public universities (that is most of them) basically operate on a subsidised ISA built into the tax system called HECS. It’s been going for almost 30 years and was started to double the rate of higher education participation, which was happened. There are huge problems with the Australian university system, but I’d say HECS is one of the lesser problems.

dghlsakjg 5y ago
If you read the tweet thread this HECS model solves a couple of the big issues. There is no adverse selection if the scheme is open to all at any institution, and there is no legal and regulatory risk since, I believe, the repayment of the loan is legally mandated through payroll rather than being subject to a private school chasing students around in courts.
- hogehoge51 5y ago
  Yes, for most repayment is via mandatory payroll withholding tax. If you fall outside of that system it’s also included in your annual tax return.

deleted 5y ago

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rossdavidh 5y ago

Another adverse selection problem: the education programs that should be using ISA's are the ones where there is a high risk that it will not increase your earning potential. For example, small liberal arts colleges. They are probably the least likely to do so, for that very reason.

groby_b 5y ago

Also a good reason: We as a society decided indentured servitude is not a concept we'd like to pursue.

beej71 5y ago
Indentured servitude: nothing to do with ISAs. 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?

indymike 5y ago

My daughter did an ISA for a six month digital marketing bootcamp. Terms were a capped ($40K total payback) 1/2 of income over $40K for 5 years, 0% interest. 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.

baobabKoodaa 5y ago
> 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. That's 50% increase in gross income, not net income.
- indymike 5y ago
  Minor nit $20k is the gross income so $15K is the net. $15k is 50% of $30k.
  - baobabKoodaa 5y ago
    No. $20k is the gross income. Then you deduct ISA payment $5k and you get to $15k. Then you deduct taxes and you get to X. X is the net income. X is lower than $15k. Therefore, the net income does not increase by 50% in this example. The net income increases much less than 50%.
sokoloff 5y ago
Her taxes likely went up by $2400 or so (plus whatever the state income tax on $20000 incremental is) and she paid $5K to the ISA. 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.

ransom1538 5y ago

If you are out there wanting to learn - checkout a local community college. You can transfer quickly, easily and finish up the last two years at almost any university you want (UCs, Standford, Caltech, CSU, etc). A high proportion of students drop out of these harder universities in the first two years anyway - so they have room. I took a few courses there to save cash - college professors in my classes taught at Berkley anyway and would use the same material. "Enrollment Fee: $31 per unit" - this is INSANE to not take advantage of this. The courses DIRECTLY transfer. Lambda school (or whatever fake bootcamp crap) credits have no transfer ability. https://www.deanza.edu/ https://www.deanza.edu/

beej71 5y ago
De Anza was great. When I went, it cost $6 per unit. I took waaaay more credits than I was able to transfer, but I learned soooo much. 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.

jmyeet 5y ago

I wonder if you can apply the lessons learned here to, say, various creative fields, most notably producing music and writing books. 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 https://www.gerryhemingway.com/piracy2.html

Traster 5y ago

If you want to see ISAs in practice, a very close thing to look at is the UK student loan programme. 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.

lmm 5y ago
By living in a country you "sign a blank cheque" for the government to tax you as it sees fit, sort of. "Tuition fees" were always a graduate tax by the back door. This kind of thing goes back to Thatcher looting the GCHQ pension fund back in the '80s. I would say "don't make a "contract" with the government", but even if you don't have a "contract" they can still decide they want to take your stuff.
- Traster 5y ago
  Here's a kicker - you actually don't have to live in the country for you to still need to pay back the loan.

j-bos 5y ago

I agree with the thread as a reflection of the industry. Still, as an individual the results bum me out because I'm now getting paid to develop software in a warm dry building thanks to the low risk of an ISA. So why ISAs clearly have issues, the safety they provide is amazing for someone with limited means.

sholladay 5y ago

The middleman is going to get paid one way or another. My main issue with ISAs is that they often take an excessively high percentage of your income and/or for too long a period. A lot of them are structured as if an ongoing service is being provided. 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.

fellellor 5y ago

This is a one sided thread not taking into account the bad behaviour by the boot camps themselves. There are plenty who just point their “students” to the Odin Project and go, here’s your reading material. Then they pair untrained kids with each other and call it a day. Where is their 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.

janandonly 5y ago

Why not simply hire someone on a 3-year contract with the understanding that the first x months will be paid for but spent in learning a new skill and the other x months will be spent in earning back the course + paid hours? 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.

pas 5y ago
EPAM did this in Hungary for example. A friend went through this. (The training was a lot of Java classes/courses, pretty in depth.)
- gwbas1c 5y ago
  They put their projects on their resumes. I used to work with a lot of EPAM developers, they were all excellent. They also write internal tools as learning projects.

dogman144 5y ago

I remember running the notional internal rate of return/IRR on an ISA for a bootcamp that did them and was appalled. Payday loans under a different name, wrapped up in good intentions and signaling. 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.

dredmorbius 5y ago

https://threadreaderapp.com/thread/1505923007096700939.html https://threadreaderapp.com/thread/1505923007096700939.html

dredmorbius 5y ago

Wikipedia's article on income-share agreements, for those unfamiliar with the concept: https://en.wikipedia.org/wiki/Income_share_agreement https://en.wikipedia.org/wiki/Income_share_agreement