5 ms·

How to Build an Income Sharing Agreement Product

120 points by saarons 7y ago

mdorazio 7y ago
Is it just me or does it seem like we're now one step closer to turning people into companies with shares that can be bought and sold? It feels like a small step from ISAs for education funding to ISAs for all kinds of funding instead of traditional loan agreements and at that point you might as well sell shares of yourself to the highest bidder so they can trade your future income on a secondary market. (Note this is reminiscent of some aspects of the novel The Unincorporated Man).
- pcmaffey 7y ago
  Which leads us back closer to the ugly reality of people owning other people. ISA used to stand for Indentured Servitude Agreement. (Not saying Incoming Sharing Agreements's are bad, we just have to be careful...)
  - yowlingcat 7y ago
    I don't disagree with you, but I'll note that the non-dischargeable terms of medical and student loan debt in the USA essentially do that already, with the added caveat of not even incentivizing the note holder to get the borrower on their feet. Is this no better than that? I think it's moving in the right direction. It's capped, and while there's still the potential structural issue of middleman taking an unfairly sized cut, the incentive structure of "we don't make money unless our education helps you do so" seems like an order of magnitude better than the alternative.
    - throwaway_law 7y ago
      >I don't disagree with you, but I'll note that the non-dischargeable terms of medical and student loan debt in the USA essentially do that already As a preliminary matter this is false...student loans are dischargable in bankruptcy, they are just treated differently than other debt. However, there is a reason everyone thinks student loans aren't dischargable and the myth persists... >the incentive structure of "we don't make money unless our education helps you do so" seems like an order of magnitude better than the alternative. Not when the real alternative is student loan forgiveness and free tuition moving forward. The issue is framing the problem as student loans for life or a financier owning a % of your labor for life, when there are other models.
      - yowlingcat 7y ago
        Student loan forgiveness would be great, as would be free tuition, but do you mean on a federal level? I'd love to see such a policy come to fruition.
        throwaway_law 7y ago
        I don't want to make it about politics or a politician, but you can search for their campaign platform proposal for additional details. As far as I know there is only one candidate running on this platform of student loan forgiveness, so it should come up quickly in a search.
        yowlingcat 7y ago
        It's great to have a presidential candidate that is running on this platform (and I think I know which one you're talking about), but I'm more interested in whether the broad coalition in congress exists, or whether it's being formed. There are a few members of congress I can think of, but not in remotely the size necessary to pull this off.
        throwaway_law 7y ago
        >I'm more interested in whether the broad coalition in congress exists Seeing as no "mainstream" political party candidate is running on this platform, I think the answer is no. Of course, I would probably say the same of any campaign issue any mainstream candidate is running on due current political climate of our 2 party system. Whats interesting is if this candidate won the election, perhaps the 2 parties would have no choice but to concede the issue, if for nothing else to realign themselves with their own constituents and win back their votes. Then again maybe we can extend the market saying "the market can remain irrational longer than you can remain solvent" to politics "political parties can remain irrational longer than you can vote."
        yowlingcat 7y ago
    - novok 7y ago
      How is medical debt not dischargeable in bankruptcy?
      - nrb 7y ago
        It is, and I think it’s the chief cause of bankruptcy in the US.
  - brighton36 7y ago
    Finally someone said it. Thank you.
  - vanniv 7y ago
    Fortunately, indentured servitude was outlawed, along with slavery, by the passage of the 13th amendment. Of course, the constitution is only as powerful as we are willing to follow it -- but I'm pretty comfortable that the slope between people agreeing to pool their income voluntarily and people being forced into servitude isn't all that slippery.
- gadders 7y ago
  Bowie Bonds for all: https://en.wikipedia.org/wiki/Celebrity_bond https://en.wikipedia.org/wiki/Celebrity_bond
- thelock85 7y ago
  I think this is how the social media influencer market works.
- bilbo0s 7y ago
  Be careful what you wish for. Shares of this nature would be regulated as securities. Which would bring a great many uncomfortable requirements to the table. Just as a for instance, I'll just point out that corporations have Boards of Directors and shareholder meetings. Both of which potentially determine and direct any future actions the corporation is allowed to take.
- tathougies 7y ago
  Perhaps it is. However, interestingly to note, most religions, like traditional Christianity and Islam, would actually be okay with an income sharing system (especially if the share was redeemable and payments set up to accomplish this) as opposed to an interest based system. It is unclear that an income sharing system is any morally worse than an interest bearing one, and there are reasons to think it is better.
  - danenania 7y ago
    Given that interest-bearing loans eventually convert to ISAs if they aren't paid (through wage garnishment), it seems hard to argue that they aren't strictly worse for the borrower.
    - tathougies 7y ago
      ISAs are not wage garnishment though. My ISA would be tied solely to the amount you're making and a non-interest-bearing predetermined price. Wage garnishment is a form of interest sharing, sure, but the underlying liability is growing at an exponential rate, which is what would be wrong.
- DoreenMichele 7y ago
  This article doesn't really go into it, but the impetus from what I gather is to try to find a viable alternative to the current system that balances practical realities with various ideals or goals. Historically, college was an upper class pursuit because the upper classes could afford it. You introduce student loans and then instruments to make them more easily accessible to anyone, you end up with the current debacle. Part of the cause of the current debacle is the fact that it takes more than the right degree to establish a sufficient income to make traditional student loans make sense. You also need job hunting skills, availability of good paying jobs and a personal situation conducive to working full-time. This means no health crises, unexpected pregnancies or other family problems imposing on your time. What we've learned is that the bet involved in the current student loan process is a bet that still leaves a lot of lower class people in a situation where college is a bad bet that may just deepen their financial problems and de facto keep them trapped in poverty. I don't know if this solution is the right solution, but I do think the goals and ideas driving these experiments are healthy impetuses. We need to continue to try to find societal patterns and practices that help lower income people have the opportunity to rise. It's better for society overall. The tendency for the principle of "them that has, gets" to deepen class divides is one that needs constant push back. Otherwise, it foments bloody revolution. We already have memes like "Eat the rich" which point to deep resentment and bitterness of the "peasant" classes. You would have to be a fool to think that's not anything to be concerned about.
throwaway_law 7y ago
It used to be society wanted people to have an education and that people with degrees would get higher paying jobs which resulted in a net benefit to society through higher taxes. Now education is just looked at as a way to in debt young people for the rest of their lives. Because 1M people default on their student loans every year and the bubble is on the verge of popping, the parasites are looking to own 10% of every dollar you make to finance your education. The problem isn't that an API doesn't exist to automatically debit 10% from the people you own, the problem is an education doesn't get you a job anymore, much less a high paying job. Instead of owning peoples labor via API, why not consider the 1 Presidential candidate who is campaigning to forgive all existing student debt and make college free moving forward by god forbid...taxing the same banks the taxpayers bailed out from bankruptcy just 10 years ago.
- rland 7y ago
  A world where algorithms trash your CV if it doesn't have the phrase "B.A." or "B.S,", and where the cost of that keyword is an irrevocable tithe on 10% of your human output. My lord, people, this might be a bad idea.
- bilbo0s 7y ago
  >The problem isn't that an API doesn't exist to automatically debit 10% from the people you own Something's just really wrong about that statement. It saddens me. Didn't we fight a war to put an end to stuff like this? Also, a president is not going to wave a magic wand and fix this system. If you want to support that candidate, by all means do so, it's one of the habits of healthy hearts and minds in a democracy. Just realize going in what's actually possible and what's political marketing. Fixing this is going to take a lot more work on everyone's part than simply casting a vote. Finally, the wealthy should pay more. No argument from me on that one. Having said that, there is a game theoretical optimum on how much you should tax each person in a society. We don't want to get carried away with taxing anyone for political reasons. Liberals do that with anything that will disproportionately stick it to bankers, and conservatives have done that with anything that will disproportionately stick it to blacks. (The recent Reductio Ad Absurdum of conservatives demanding that college athletes pay taxes on scholarships is an example I'm guessing you might appreciate of how political targeting can get just a bit ridiculous.)
mattmarcus 7y ago
I find it interesting the recent rapid rise of ISAs. I remember back in 2013/14, hearing Upstart pitch to my college for their ISA program. From what I recall, their pitch fell mostly on deaf ears. You can still see their ISA agreement online funnily enough: https://www.upstart.com/funding_terms https://www.upstart.com/funding_terms But they discontinued it in 2014: https://slate.com/business/2014/05/upstart-pulls-income-share-agreements-in-favor-of-traditional-loans.html https://slate.com/business/2014/05/upstart-pulls-income-shar... It's not clear to me why the market pull for ISAs has grown so much recently, although I am happy to see it as an alternative to debt. Perhaps it's the increasing student loan debt burden in the US? Perhaps capital markets opening up to ISAs as an investment vehicle as well?
- danenania 7y ago
  I think the tech boom/talent shortage has a lot to do with it. It seems fairly unprecedented that a smart person with no education can take a ~1 year course, then reliably expect to be making a significantly above average salary immediately, and a six figure salary within a few years.
- davidbhead 7y ago
  I'm wondering why it's just now they've become popular. Maybe they just needed a successful initial usecase and found it in Lambda School (unless I'm missing another successful ISA use case before Lambda School). Regardless, it's great to see Modern Treasury build a solution to make ISAs simpler to implement.
sdan 7y ago
Only reason (as a college student) don’t like ISAs is because they take up to something as ridiculous as 10 million over a 10 year period (if you do happen to make that much). I think ISAs may find a place for a greater majority of America though.
- pc86 7y ago
  Isn't that the whole point? The very successful ISA participants are subsidizing the less successful ISA participants. An ISA with an income cap is just a loan with a lot more downside for the lender.
Spooky23 7y ago
How gross. Seems like a poorly thought out product -- isn't my incentive here as a borrower to avoid making documentable income?
- TimPC 7y ago
  Or setup a contracting corporation, accumulate your consulting income in the corporation. Have a home office. Pay yourself as little as possible to cover living expenses during the 5 year period and accumulate all the capital in your corporation. Pay your 10% on that small amount. Cash out the corporation afterwards, possibly over several years to lower tax burden.
  - pmiller2 7y ago
    I have a feeling that would be a breach of contract due to fraud. I also think that since you were able to come up with it, other smart people would be, too, and some of them would be people drafting these income share agreements.
    - Spooky23 7y ago
      Usually these financial engineering schemes gloss over obvious defects and stick the investor with the risk. The whole reason that student loans are non-dischargeable is that medical students would become doctors, then leave the country for enough time for debt to go away.
- rtkwe 7y ago
  Sure it's vaguely does but most fields people would go into for college degrees don't generally do work undocumented. Also the loan company has an opposite incentive to track down anyone doing that and unlike the IRS they're not hamstrung by Congressional attempts to bleed them dry.
  - Spooky23 7y ago
    Undocumented doesn’t mean washing dishes for cash. Your spouse sets up an LLC, which employs you at minimum wage to be a contract worker or consultant. This already happens in government contracting where small companies have a leg up of they are female, minority, or veteran owned.
_ah 7y ago
I generally like the concept of ISAs. The current system in the US incentivizes colleges to provide an exclusive "luxury" experience, regardless of cost. Here the incentives are more properly aligned. In addition, ISAs place a natural cap on college cost. Where cost could previously grow without bound (all loans are backstopped by the federal government), now cost is tied directly to the prevailing wage of the graduate. To the extent that wages signal the needs of the economy at large, I'd assume that ISAs would increase the number of graduates in in-demand fields at the cost of some fringe benefits. The big losers in this equation are the lesser-paid but still socially valuable professions such as teaching. However, it's unclear to me that these skills could not also be delivered at significantly lower cost (as they were several decades ago).
aripickar 7y ago
The currently proposed legal framework for ISA's[0] seems like it would make ISA's dischargeable in bankruptcy, which would likely cause all sorts of issues with people signing up for them, using them to pay for tuition, and then immediately taking on as much delinquent debt to declare bankruptcy. That seems like a very perverse incentive for schools to deal with, since degree's are permanent but bankruptcy only stays on your credit report for a bit. [0] https://www.forbes.com/sites/alisongriffin/2019/07/18/a-rare-bipartisan-bill-takes-on-student-debt/ https://www.forbes.com/sites/alisongriffin/2019/07/18/a-rare...
- journalctl 7y ago
  Clearly default and a lifetime of ruined credit is the better option.
  - pc86 7y ago
    Literally nothing can result in a lifetime of ruined credit other than a lifetime of not paying your bills.
    - PopeDotNinja 7y ago
      Except student loans in the USA. They can't be discharged and the debt never goes away. Unpaid student loans will haunt you forever.
      - pc86 7y ago
        Like I said. A lifetime of not paying your bills.
      - deleted 7y ago
        [deleted]
      - ac29 7y ago
        > student loans in the USA. They can't be discharged and the debt never goes away. Yeah, this is a common myth. Student loan payments in the US are limited to 10% of discretionary income for up to 20 years. If you make too little to pay off your loans on the standard 10 year plan you aren't just saddled with the debt forever. https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven https://studentaid.ed.gov/sa/repay-loans/understand/plans/in...
asselinpaul 7y ago
Alternatively, https://leif.org/ https://leif.org/ can manage all of this for you. Disclosure: I work at Leif
jedberg 7y ago
The biggest downside to the rise of ISAs is the decline of the humanities. There are some majors where the cost of educating the student is simply more than the school would earn in a lifetime of work, but they still have value to society. We would need some way to account for that in a world where ISAs fund all education. How do we incentive schools/lenders to fund people who want to study art and literature? Or should we?
- mentalpiracy 7y ago
  You incentivize this by attacking the problem directly - which is to realize that the cost of education is not rising due to scarcity, its rising because of misguided administrative practices and budget allocations. Quality educational materials are certainly not more scarce today than they were 50 years ago, or somehow astronomically more expensive today. Quality educators are not astronomically expensive and costing students more. In fact, educators are being chased from the classroom because we treat professors and teachers as a cost center and have systematically eliminated long-term confidence in career stability by replacing career professors with graduate students and adjuncts.
  - thfuran 7y ago
    There is, however, quite a bit more demand for college degrees today than 50 years ago.
- dbancajas 7y ago
  basic supply demand. Less supply, more demand = higher salary = more students. There is obv equilibrium point.
- codingdave 7y ago
  Your comment reminded me of this article from a few weeks back: https://www.nytimes.com/2019/09/20/business/liberal-arts-stem-salaries.html https://www.nytimes.com/2019/09/20/business/liberal-arts-ste... STEM careers are and likely always will be a solid choice. But liberal arts aren't as bad as pop culture would make them out to be.
m0zg 7y ago
And we're basically back to where we were 300 years ago, where you had to give part of your income to your feudal lord.
jrochkind1 7y ago
So... share-cropping, basically?
amenghra 7y ago
Relevant podcast about baseball players forming pools to share their earnings: https://www.npr.org/2019/10/25/773493342/episode-947-some-of-the-money-ball https://www.npr.org/2019/10/25/773493342/episode-947-some-of...

120 points by saarons 7y ago

Is it just me or does it seem like we're now one step closer to turning people into companies with shares that can be bought and sold? It feels like a small step from ISAs for education funding to ISAs for all kinds of funding instead of traditional loan agreements and at that point you might as well sell shares of yourself to the highest bidder so they can trade your future income on a secondary market. (Note this is reminiscent of some aspects of the novel The Unincorporated Man).

pcmaffey 7y ago
Which leads us back closer to the ugly reality of people owning other people. ISA used to stand for Indentured Servitude Agreement. (Not saying Incoming Sharing Agreements's are bad, we just have to be careful...)
- yowlingcat 7y ago
  I don't disagree with you, but I'll note that the non-dischargeable terms of medical and student loan debt in the USA essentially do that already, with the added caveat of not even incentivizing the note holder to get the borrower on their feet. Is this no better than that? I think it's moving in the right direction. It's capped, and while there's still the potential structural issue of middleman taking an unfairly sized cut, the incentive structure of "we don't make money unless our education helps you do so" seems like an order of magnitude better than the alternative.
  - throwaway_law 7y ago
    >I don't disagree with you, but I'll note that the non-dischargeable terms of medical and student loan debt in the USA essentially do that already As a preliminary matter this is false...student loans are dischargable in bankruptcy, they are just treated differently than other debt. However, there is a reason everyone thinks student loans aren't dischargable and the myth persists... >the incentive structure of "we don't make money unless our education helps you do so" seems like an order of magnitude better than the alternative. Not when the real alternative is student loan forgiveness and free tuition moving forward. The issue is framing the problem as student loans for life or a financier owning a % of your labor for life, when there are other models.
    - yowlingcat 7y ago
      Student loan forgiveness would be great, as would be free tuition, but do you mean on a federal level? I'd love to see such a policy come to fruition.
      - throwaway_law 7y ago
        I don't want to make it about politics or a politician, but you can search for their campaign platform proposal for additional details. As far as I know there is only one candidate running on this platform of student loan forgiveness, so it should come up quickly in a search.
        yowlingcat 7y ago
        It's great to have a presidential candidate that is running on this platform (and I think I know which one you're talking about), but I'm more interested in whether the broad coalition in congress exists, or whether it's being formed. There are a few members of congress I can think of, but not in remotely the size necessary to pull this off.
        throwaway_law 7y ago
        >I'm more interested in whether the broad coalition in congress exists Seeing as no "mainstream" political party candidate is running on this platform, I think the answer is no. Of course, I would probably say the same of any campaign issue any mainstream candidate is running on due current political climate of our 2 party system. Whats interesting is if this candidate won the election, perhaps the 2 parties would have no choice but to concede the issue, if for nothing else to realign themselves with their own constituents and win back their votes. Then again maybe we can extend the market saying "the market can remain irrational longer than you can remain solvent" to politics "political parties can remain irrational longer than you can vote."
        yowlingcat 7y ago
  - novok 7y ago
    How is medical debt not dischargeable in bankruptcy?
    - nrb 7y ago
      It is, and I think it’s the chief cause of bankruptcy in the US.
- brighton36 7y ago
  Finally someone said it. Thank you.
- vanniv 7y ago
  Fortunately, indentured servitude was outlawed, along with slavery, by the passage of the 13th amendment. Of course, the constitution is only as powerful as we are willing to follow it -- but I'm pretty comfortable that the slope between people agreeing to pool their income voluntarily and people being forced into servitude isn't all that slippery.
gadders 7y ago
Bowie Bonds for all: https://en.wikipedia.org/wiki/Celebrity_bond https://en.wikipedia.org/wiki/Celebrity_bond
thelock85 7y ago
I think this is how the social media influencer market works.
bilbo0s 7y ago
Be careful what you wish for. Shares of this nature would be regulated as securities. Which would bring a great many uncomfortable requirements to the table. Just as a for instance, I'll just point out that corporations have Boards of Directors and shareholder meetings. Both of which potentially determine and direct any future actions the corporation is allowed to take.
tathougies 7y ago
Perhaps it is. However, interestingly to note, most religions, like traditional Christianity and Islam, would actually be okay with an income sharing system (especially if the share was redeemable and payments set up to accomplish this) as opposed to an interest based system. It is unclear that an income sharing system is any morally worse than an interest bearing one, and there are reasons to think it is better.
- danenania 7y ago
  Given that interest-bearing loans eventually convert to ISAs if they aren't paid (through wage garnishment), it seems hard to argue that they aren't strictly worse for the borrower.
  - tathougies 7y ago
    ISAs are not wage garnishment though. My ISA would be tied solely to the amount you're making and a non-interest-bearing predetermined price. Wage garnishment is a form of interest sharing, sure, but the underlying liability is growing at an exponential rate, which is what would be wrong.
DoreenMichele 7y ago
This article doesn't really go into it, but the impetus from what I gather is to try to find a viable alternative to the current system that balances practical realities with various ideals or goals. Historically, college was an upper class pursuit because the upper classes could afford it. You introduce student loans and then instruments to make them more easily accessible to anyone, you end up with the current debacle. Part of the cause of the current debacle is the fact that it takes more than the right degree to establish a sufficient income to make traditional student loans make sense. You also need job hunting skills, availability of good paying jobs and a personal situation conducive to working full-time. This means no health crises, unexpected pregnancies or other family problems imposing on your time. What we've learned is that the bet involved in the current student loan process is a bet that still leaves a lot of lower class people in a situation where college is a bad bet that may just deepen their financial problems and de facto keep them trapped in poverty. I don't know if this solution is the right solution, but I do think the goals and ideas driving these experiments are healthy impetuses. We need to continue to try to find societal patterns and practices that help lower income people have the opportunity to rise. It's better for society overall. The tendency for the principle of "them that has, gets" to deepen class divides is one that needs constant push back. Otherwise, it foments bloody revolution. We already have memes like "Eat the rich" which point to deep resentment and bitterness of the "peasant" classes. You would have to be a fool to think that's not anything to be concerned about.

throwaway_law 7y ago

It used to be society wanted people to have an education and that people with degrees would get higher paying jobs which resulted in a net benefit to society through higher taxes. Now education is just looked at as a way to in debt young people for the rest of their lives. Because 1M people default on their student loans every year and the bubble is on the verge of popping, the parasites are looking to own 10% of every dollar you make to finance your education. The problem isn't that an API doesn't exist to automatically debit 10% from the people you own, the problem is an education doesn't get you a job anymore, much less a high paying job. Instead of owning peoples labor via API, why not consider the 1 Presidential candidate who is campaigning to forgive all existing student debt and make college free moving forward by god forbid...taxing the same banks the taxpayers bailed out from bankruptcy just 10 years ago.

rland 7y ago
A world where algorithms trash your CV if it doesn't have the phrase "B.A." or "B.S,", and where the cost of that keyword is an irrevocable tithe on 10% of your human output. My lord, people, this might be a bad idea.
bilbo0s 7y ago
>The problem isn't that an API doesn't exist to automatically debit 10% from the people you own Something's just really wrong about that statement. It saddens me. Didn't we fight a war to put an end to stuff like this? Also, a president is not going to wave a magic wand and fix this system. If you want to support that candidate, by all means do so, it's one of the habits of healthy hearts and minds in a democracy. Just realize going in what's actually possible and what's political marketing. Fixing this is going to take a lot more work on everyone's part than simply casting a vote. Finally, the wealthy should pay more. No argument from me on that one. Having said that, there is a game theoretical optimum on how much you should tax each person in a society. We don't want to get carried away with taxing anyone for political reasons. Liberals do that with anything that will disproportionately stick it to bankers, and conservatives have done that with anything that will disproportionately stick it to blacks. (The recent Reductio Ad Absurdum of conservatives demanding that college athletes pay taxes on scholarships is an example I'm guessing you might appreciate of how political targeting can get just a bit ridiculous.)

mattmarcus 7y ago

I find it interesting the recent rapid rise of ISAs. I remember back in 2013/14, hearing Upstart pitch to my college for their ISA program. From what I recall, their pitch fell mostly on deaf ears. You can still see their ISA agreement online funnily enough: https://www.upstart.com/funding_terms https://www.upstart.com/funding_terms But they discontinued it in 2014: https://slate.com/business/2014/05/upstart-pulls-income-share-agreements-in-favor-of-traditional-loans.html https://slate.com/business/2014/05/upstart-pulls-income-shar... It's not clear to me why the market pull for ISAs has grown so much recently, although I am happy to see it as an alternative to debt. Perhaps it's the increasing student loan debt burden in the US? Perhaps capital markets opening up to ISAs as an investment vehicle as well?

danenania 7y ago
I think the tech boom/talent shortage has a lot to do with it. It seems fairly unprecedented that a smart person with no education can take a ~1 year course, then reliably expect to be making a significantly above average salary immediately, and a six figure salary within a few years.
davidbhead 7y ago
I'm wondering why it's just now they've become popular. Maybe they just needed a successful initial usecase and found it in Lambda School (unless I'm missing another successful ISA use case before Lambda School). Regardless, it's great to see Modern Treasury build a solution to make ISAs simpler to implement.

sdan 7y ago

Only reason (as a college student) don’t like ISAs is because they take up to something as ridiculous as 10 million over a 10 year period (if you do happen to make that much). I think ISAs may find a place for a greater majority of America though.

pc86 7y ago
Isn't that the whole point? The very successful ISA participants are subsidizing the less successful ISA participants. An ISA with an income cap is just a loan with a lot more downside for the lender.

Spooky23 7y ago

How gross. Seems like a poorly thought out product -- isn't my incentive here as a borrower to avoid making documentable income?

TimPC 7y ago
Or setup a contracting corporation, accumulate your consulting income in the corporation. Have a home office. Pay yourself as little as possible to cover living expenses during the 5 year period and accumulate all the capital in your corporation. Pay your 10% on that small amount. Cash out the corporation afterwards, possibly over several years to lower tax burden.
- pmiller2 7y ago
  I have a feeling that would be a breach of contract due to fraud. I also think that since you were able to come up with it, other smart people would be, too, and some of them would be people drafting these income share agreements.
  - Spooky23 7y ago
    Usually these financial engineering schemes gloss over obvious defects and stick the investor with the risk. The whole reason that student loans are non-dischargeable is that medical students would become doctors, then leave the country for enough time for debt to go away.
rtkwe 7y ago
Sure it's vaguely does but most fields people would go into for college degrees don't generally do work undocumented. Also the loan company has an opposite incentive to track down anyone doing that and unlike the IRS they're not hamstrung by Congressional attempts to bleed them dry.
- Spooky23 7y ago
  Undocumented doesn’t mean washing dishes for cash. Your spouse sets up an LLC, which employs you at minimum wage to be a contract worker or consultant. This already happens in government contracting where small companies have a leg up of they are female, minority, or veteran owned.

_ah 7y ago

I generally like the concept of ISAs. The current system in the US incentivizes colleges to provide an exclusive "luxury" experience, regardless of cost. Here the incentives are more properly aligned. In addition, ISAs place a natural cap on college cost. Where cost could previously grow without bound (all loans are backstopped by the federal government), now cost is tied directly to the prevailing wage of the graduate. To the extent that wages signal the needs of the economy at large, I'd assume that ISAs would increase the number of graduates in in-demand fields at the cost of some fringe benefits. The big losers in this equation are the lesser-paid but still socially valuable professions such as teaching. However, it's unclear to me that these skills could not also be delivered at significantly lower cost (as they were several decades ago).

aripickar 7y ago

The currently proposed legal framework for ISA's[0] seems like it would make ISA's dischargeable in bankruptcy, which would likely cause all sorts of issues with people signing up for them, using them to pay for tuition, and then immediately taking on as much delinquent debt to declare bankruptcy. That seems like a very perverse incentive for schools to deal with, since degree's are permanent but bankruptcy only stays on your credit report for a bit. [0] https://www.forbes.com/sites/alisongriffin/2019/07/18/a-rare-bipartisan-bill-takes-on-student-debt/ https://www.forbes.com/sites/alisongriffin/2019/07/18/a-rare...

journalctl 7y ago
Clearly default and a lifetime of ruined credit is the better option.
- pc86 7y ago
  Literally nothing can result in a lifetime of ruined credit other than a lifetime of not paying your bills.
  - PopeDotNinja 7y ago
    Except student loans in the USA. They can't be discharged and the debt never goes away. Unpaid student loans will haunt you forever.
    - pc86 7y ago
      Like I said. A lifetime of not paying your bills.
    - deleted 7y ago
      [deleted]
    - ac29 7y ago
      > student loans in the USA. They can't be discharged and the debt never goes away. Yeah, this is a common myth. Student loan payments in the US are limited to 10% of discretionary income for up to 20 years. If you make too little to pay off your loans on the standard 10 year plan you aren't just saddled with the debt forever. https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven https://studentaid.ed.gov/sa/repay-loans/understand/plans/in...

asselinpaul 7y ago

Alternatively, https://leif.org/ https://leif.org/ can manage all of this for you. Disclosure: I work at Leif

jedberg 7y ago

The biggest downside to the rise of ISAs is the decline of the humanities. There are some majors where the cost of educating the student is simply more than the school would earn in a lifetime of work, but they still have value to society. We would need some way to account for that in a world where ISAs fund all education. How do we incentive schools/lenders to fund people who want to study art and literature? Or should we?

mentalpiracy 7y ago
You incentivize this by attacking the problem directly - which is to realize that the cost of education is not rising due to scarcity, its rising because of misguided administrative practices and budget allocations. Quality educational materials are certainly not more scarce today than they were 50 years ago, or somehow astronomically more expensive today. Quality educators are not astronomically expensive and costing students more. In fact, educators are being chased from the classroom because we treat professors and teachers as a cost center and have systematically eliminated long-term confidence in career stability by replacing career professors with graduate students and adjuncts.
- thfuran 7y ago
  There is, however, quite a bit more demand for college degrees today than 50 years ago.
dbancajas 7y ago
basic supply demand. Less supply, more demand = higher salary = more students. There is obv equilibrium point.
codingdave 7y ago
Your comment reminded me of this article from a few weeks back: https://www.nytimes.com/2019/09/20/business/liberal-arts-stem-salaries.html https://www.nytimes.com/2019/09/20/business/liberal-arts-ste... STEM careers are and likely always will be a solid choice. But liberal arts aren't as bad as pop culture would make them out to be.

m0zg 7y ago

And we're basically back to where we were 300 years ago, where you had to give part of your income to your feudal lord.

jrochkind1 7y ago

So... share-cropping, basically?

amenghra 7y ago

Relevant podcast about baseball players forming pools to share their earnings: https://www.npr.org/2019/10/25/773493342/episode-947-some-of-the-money-ball https://www.npr.org/2019/10/25/773493342/episode-947-some-of...