NYT: Income Sharing Agreements -- Silicon Valley venture capitalists take on student loans

Deleted member 8860 · Jan 12, 2019

"No Tuition, but You Pay a Percentage of Your Income (if You Find a Job)"
https://www.nytimes.com/2019/01/08/business/dealbook/education-student-loans-lambda-schools.html

Now, Silicon Valley is backing a novel idea that proposes to rewrite the economics of getting an education.

The concept is deceptively simple: Instead of charging students tuition — which often requires them to take out thousands of dollars in loans — students go to school for free and are required to pay back a percentage of their income after graduation, but only if they get a job with a good salary.

The idea, known as an Income Share Agreement, or I.S.A., has been experimented with and talked about for years. But what's happening at Lambda School, an online learning start-up founded in 2017 with the backing of Y Combinator, has captivated venture capitalists.

At Lambda, students pay nothing upfront. But they are required to pay 17 percent of their salary to Lambda for two years if they get a job that pays more than $50,000. (Lambda says 83 percent of its students get a job with a median salary of $70,000 within six months of graduating.) If they don't get a job, or their salary is lower, they pay nothing. Payments are capped at $30,000, so a highly paid student isn't penalized for success, and if a student loses a job, the payments pause.

It also means schools may not be willing to take a chance on a promising but higher-risk student.
"Is it a bad thing to say that schools are going to be for people who are motivated to succeed in said school?" Mr. Allred asked. "I look at some of the predatory, for-profit educations that just don't care. I don't think that's a win for anybody, including the students. I think schools should be actively trying to determine who will be successful and that's part of your job. Harvard does that, right?"

Critics of such programs have argued they are a form of indentured servitude. The percentage of income that Lambda takes — 17 percent — is high, and has even been described as predatory. And Purdue's program is even more aggressive: It is a loan-like arrangement that could charge high-earning students 250 percent of the cost of their education.

I can see some merit to programs like these to supplement traditional student loans, particularly for technical training programs or vocational schools, but who's going to offer this for liberal arts majors or people with non-traditional college backgrounds?

El Bombastico · Jan 12, 2019

So instead of the schools fucking you over, the companies do.

Nice...

whatsinaname · Jan 12, 2019

El Bombastico said:
So instead of the schools fucking you over, the companies do.

Nice...

I remember Purdue (and a few other unis were thinking of this too...)

Edit: It looks like they've actually implemented it.

https://www.purdue.edu/dfa/types-of-aid/income-share-agreement/index.html

In short, an ISA is an agreement where you receive funding while you are in school. When you leave school, you will pay a fixed percentage of your income for a fixed number of years. For some students, this will make sense and for others, the alternatives may be better.

You can also access a comparison tool that will allow you to enter your information and learn what the terms of your agreement would be

Edit 2: Damn, didn't know Purdue's agreement was that bad. 250% of the cost at the end of repayment...

TheMan · Jan 12, 2019

lol at indentured servitude

actually I think it can be a decent deal and strong motivator to strive for excellence. Not sure it makes financial sense (for the college) for a degree with shit earning potential like philosophy.

Static · Jan 12, 2019

That seems like a pretty good deal if you can get it? You could potentially end up paying way more for your education than it costs, but only if you're ludicrously successful. And even if that happens, that still means that you're ridiculously successful, and after two years, either way you owe nothing. Students who can't get a high earning job out of their education owe nothing. This is a system where cost based upon ability to pay, and access seems to be based upon the school's confidence in your ability to find a job that will pay enough to indebt you to them. I'm not seeing the predatory angle in this. These are progressive education costs where access to the school doesn't even seem to be based on your parents wealth, but purely on your own ability to secure emplyment following graduation.

'3y Kingdom · Jan 12, 2019

Who knew techbros loved taxes?

Mr. X · Jan 12, 2019

No way this is as pro-student as they want to market it as.

Dubbedinenglish · Jan 12, 2019

Silicon Valley invents the new concept of taxes

Phrozenflame500 · Jan 12, 2019

It seems strictly better then the student-loan based model because it automatically scales to ability to pay and it gives a good incentive structure to the school, but it wouldn't work for research-based fields and I'm not sure about the cost.

Paz · Jan 12, 2019

Why can't there ever be good news about the American education and health systems, the fact that this is considered a viable deal and could improve people's lives is insane.

Deleted member 22490 · Jan 12, 2019

Wage garnishment

Citizencope · Jan 12, 2019

Edit: Wow that's a first in 10+ years of "sites like this". Wrong thread sorry. Go Pats!

Syriel · Jan 12, 2019

'3y Kingdom said:
Who knew techbros loved taxes?

Dubbedinenglish said:
Silicon Valley invents the new concept of taxes

It's just a different type of loan. Pay upfront and you pay less. Pay later and you pay more.

Considering a software Eng I is going to land a six figure job fairly easy in the Bay Area (and likely $60-70k outside the SF area), this is an easy bet for the school if they pick solid students.

Armaros · Jan 12, 2019

Oh yay, Silicon Valley style student loans.

Aka we will be student loan sharks

I am sure they will be generous and not have lots of fine print stipulations that means they basically own you.

Deleted member 8860 · Jan 12, 2019

whatsinaname said:
I remember Purdue (and a few other unis were thinking of this too...)

Edit: It looks like they've actually implemented it.

https://www.purdue.edu/dfa/types-of-aid/income-share-agreement/index.html

Edit 2: Damn, didn't know Purdue's agreement was that bad. 250% of the cost at the end of repayment...

As Purdue is my alma mater, I put in my actual major and a completion date 20 years after my actual date of graduation. Hypothetical 20 year younger me would pay $40K under Purdue's Income Sharing Agreement instead of $45K with PLUS loans or $50K with private loans, but over a shorter period, assuming average compensation (my first job out of college payed worse than average, but my second paid more, so I'd probably be around the average for the repayment period).

Static · Jan 12, 2019

Armaros said:
Aka we will be student loan sharks

There's no cost if you don't get a job that can pay, though? And your costs scale to your ability to pay?

Armaros · Jan 12, 2019

Static said:
There's no cost if you don't get a job that can pay, though? And your costs scale to your ability to pay?

I'll beleive it if they actually become real and there is not fine print in the loan contracts saying otherwise.

El Bombastico · Jan 12, 2019

Static said:
There's no cost if you don't get a job that can pay, though? And your costs scale to your ability to pay?

Whats the incentive to get a good job though? This thing basically punishes success by taking almost a fifth of your paycheck if you land a good job. Considering that in most areas around Silicon Valley, that fifth is going to be the difference between having your own place to live or being forced to shackle up with roommates, that's an incredible stiff repayment plan.

whatsinaname · Jan 12, 2019

emag said:
As Purdue is my alma mater, I put in my actual major and a completion date 20 years my actual date of graduation. Hypothetical 20 year younger me would pay $40K under Purdue's Income Sharing Agreement instead of $45K with PLUS loans or $50K with private loans, but over a shorter period, assuming average compensation (my first job out of college payed worse than average, but my second paid more, so I'd probably be around the average for the repayment period).

I would just ask the basic question. If the aim is not to extract more money from students than they currently are, why would they be investigating this? Like credit card rewards, some might come ahead. But the goal has to be to make sure many don't.

Zushin · Jan 12, 2019

So would this be similar to he HECS debt system we have in Australia? Tuition fees are paid for by the government with an interest free loan. Once you are earning a certain threshold of income (around $55k AUD) a percentage of your wage is taxed that goes to paying off the loan. The perctange scales with how much you earn over the threshold.

Suiko · Jan 12, 2019

This already exists:
https://studentloans.gov/myDirectLoan/ibrInstructions.action

Evolution of Metal · Jan 12, 2019

El Bombastico said:
Whats the incentive to get a good job though? This thing basically punishes success by taking almost a fifth of your paycheck if you land a good job.

To pay back the loan and enjoy a successful career? The payments aren't infinite, although as high as 250% sounds bad.

Don't even go to the university if you want a minimum wage job... Problem solved.

Zushin said:
So would this be similar to he HECS debt system we have in Australia? Tuition fees are paid for by the government with an interest free loan. Once you are earning a certain threshold of income (around $55k AUD) a percentage of your wage is taxed that goes to paying off the loan.

Similar in UK. If you are unable to return the student loan money as a % of your income, which is small enough to not cause any financial problems, I think it will go away in like 20 years.

Static · Jan 12, 2019

El Bombastico said:
Whats the incentive to get a good job though? This thing basically punishes success by taking almost a fifth of your paycheck if you land a good job.

If you're asking "Why would I take a 58k job instead of a 49k job," fair point. I'm going to imagine there's some degree scale up from 0% to the 17% though, and it's not just an @$50k thing. I don't know exactly. But if you're asking, "Why should I take any good job," the answer is because so long as you're earning more than 60k, you'll be earning more than 50k, even with the fees. Unless there are things they aren't saying here, it seems like a good deal, so long as you end up making either less than 50k, or more than 60k, and I suspect they have some way of accounting for anyone making anywhere between 50k and 60k as well to make it not unreasonable for them? I don't know. I'm just going based on what's written.

Deleted member 8860 · Jan 12, 2019

Suiko said:
This already exists:
https://studentloans.gov/myDirectLoan/ibrInstructions.action

The difference with ISAs is that your total payment (not just your monthly payment) is based on your salary -- if you earn more, you pay more (in total); if you don't meet a minimum income threshold, you don't pay anything and your "loan" is discharged. It's not just spreading your payments out over a longer period of time.

Tracygill · Jan 12, 2019

The (russians) europeans used (a pencil) public student loan schemes with no or low interest rates.

Quixzlizx · Jan 12, 2019

El Bombastico said:
Whats the incentive to get a good job though? This thing basically punishes success by taking almost a fifth of your paycheck if you land a good job. Considering that in most areas around Silicon Valley, that fifth is going to be the difference between having your own place to live or being forced to shackle up with roommates, that's an incredible stiff repayment plan.

The incentive would be to make 80% of a high salary instead of living in a homeless shelter.

Phrozenflame500 · Jan 12, 2019

Zushin said:
So would this be similar to he HECS debt system we have in Australia? Tuition fees are paid for by the government with an interest free loan. Once you are earning a certain threshold of income (around $55k AUD) a percentage of your wage is taxed that goes to paying off the loan.

Evolution of Metal said:
Similar in UK. If you are unable to return the student loan money as a % of your income, which is small enough to not cause any financial problems, I think it will go away in like 20 years.

The important difference in this case is that the school eats the cost if you can't get a good job, while in the case of income-based loan repayments the government eats the cost. In theory the former is better since it incentivizes the school to focus more around getting their graduates better jobs.

Fiction · Jan 12, 2019

I could see this working for some degrees, but despite what people may say, we do need people with liberal arts degrees. They don't pay well in general, but they advance culture and understanding of humanity.

AZ Greg · Jan 12, 2019

Cut out the collection agencies cut and go straight to wage garnishment. Smart.

Deleted member 8860 · Jan 12, 2019

Phrozenflame500 said:
The important difference in this case is that the school eats the cost if you can't get a good job, while in the case of income-based loan repayments the government eats the cost. In theory the former is better since it incentivizes the school to focus more around getting their graduates better jobs.

The alignment of incentives is the most interesting element of these programs. The school actually wants to work to get you the best/highest-paying job possible; there would be pressure on the employer outreach programs to really take an interest in student placements, administration to provide support for student troubles (preventing dropping out), and for faculty to provide the best career-oriented instruction. But if such programs were expanded to crowd out regular loans, schools would also be incentivized to pick "sure bets" -- STEM majors with high academic achievement and stable, professional families and refuse students who seem more variable/risky.

Jintor · Jan 12, 2019

So is this the English/Australian student loan system but backed by private corporations instead of the government

Deleted member 1041 · Jan 12, 2019

Sign me up

30k cap and in 2 years if I earn over 50k? For a degree? Shit yeah. Beats 10 years worth of student loams

Gentlemen · Jan 13, 2019

Lol they invented public education and taxation.

Cool.

Thanks techbros.

BreakyBoy · Jan 13, 2019

Another reason you'd want to take the higher paying job despite increasing the cost of your repayment, is that statistically, your future earning potential is highly influenced by your current salary level.

In other words, a future 5% pay raise means twice as much money if you started your career at 80k instead of 40k.

Also, even without a pay raise, after two years, your repayment is done and you're still at a higher salary than you would have been if you had taken the lower salary to start with.

Without actually running any numbers, this sounds like an ok idea, but not a cure-all for everything. Just a nice extra option for those who are looking to go to school for job training in a well-paid field.

Also, you could think of it as a progressive taxation. The more successful/richer graduates subsidize the less successful ones. I'm ok with that. All assuming it's not just 100% gravy lining the pockets of a for-profit school.

Like Fiction said, this probably won't work for less lucrative fields. Not to mention it doubles down on the idea that universities are just job training/placement programs. Ideally, I'd say they shouldn't be. Realistically, I'd say they mostly already are.

Maybe if programs like this helped cover some of the more lucrative fields, government grants could be refocused on the less lucrative fields that benefit society.

Nothing Loud · Jan 13, 2019

Indentured servitude and loyalty to a company. Plus this doesn't fix my fucking $100k in debt I already have.

Akira86 · Jan 13, 2019

Silicon Valley must be stopped...

Slayven · Jan 13, 2019

whatsinaname got it right, a new form of the Company Store.

feline fury · Jan 13, 2019

What's stopping somebody from doing contract work for two years before looking for a full time gig afterwards with their experience and degree?

808s & Villainy · Jan 13, 2019

El Bombastico said:
Whats the incentive to get a good job though? This thing basically punishes success by taking almost a fifth of your paycheck if you land a good job. Considering that in most areas around Silicon Valley, that fifth is going to be the difference between having your own place to live or being forced to shackle up with roommates, that's an incredible stiff repayment plan.

I can't tell if this is a serious question or not

Armadilo · Jan 13, 2019

I'll do it, anyone offering it at any film school ?

spootime · Jan 13, 2019

El Bombastico said:
Whats the incentive to get a good job though? This thing basically punishes success by taking almost a fifth of your paycheck if you land a good job. Considering that in most areas around Silicon Valley, that fifth is going to be the difference between having your own place to live or being forced to shackle up with roommates, that's an incredible stiff repayment plan.

making more total cash? working for a more prestigious company? what incentive do you have to NOT get a good job besides being a lazy fuck?

Nothing Loud said:
Indentured servitude and loyalty to a company. Plus this doesn't fix my fucking $100k in debt I already have.

what did you take 100k in debt for?

LuigiV · Jan 13, 2019

This is pretty much how it works here in Australia, except it's a government run program. I not sure I'd trust the private sector to run a program like this.

ZackieChan · Jan 13, 2019

Suiko said:
This already exists:
https://studentloans.gov/myDirectLoan/ibrInstructions.action

Yep. Not sure what the difference is, really.

emag said:
The difference with ISAs is that your total payment (not just your monthly payment) is based on your salary -- if you earn more, you pay more (in total); if you don't meet a minimum income threshold, you don't pay anything and your "loan" is discharged. It's not just spreading your payments out over a longer period of time.

That's not what IBR is. IBR let's you pay a percentage of income ABOVE THE POVERTY LINE, so not on your entire income. It's discharged after a certain number of years. Only real issue is that the forgiveness amount may be taxable, which would be a huge hit against people coming off of it.

Nothing Loud said:
Indentured servitude and loyalty to a company. Plus this doesn't fix my fucking $100k in debt I already have.

Cant you get IBR?

Shy · Jan 13, 2019

That's fucking disgusting.

bricewgilbert · Jan 13, 2019

These people must be stopped.

Rendering... · Jan 13, 2019

Why are posters freaking out about this? I'd rather pay a percentage of my income for a couple years on the precondition I got a well paying job than be stuck with a lump sum I have to pay off no matter what.

spootime · Jan 13, 2019

Rendering... said:
Why are posters freaking out about this? I'd rather pay a percentage of my income for a couple years on the precondition I got a well paying job than be stuck with a lump sum I have to pay off no matter what.

Same. I would also much rather trust a program thats getting a percentage of my earnings to get me a good job than the shitty excuse for a career services office I had at my public university.

BLEEN · Jan 13, 2019

If you don't get a well-paying job, and don't have to pay shit, this is a step in the right direction.

Now retroactively turn my student loan into this and absolve all!

A More Normal Bird · Jan 13, 2019

Jintor said:
So is this the English/Australian student loan system but backed by private corporations instead of the government

No no, this a novel new idea that's going to disrupt the education system. This is the type of innovative thinking that venture capital is essential for!

But yes, this isn't a new idea and is government run in other countries like Australia. It also covers all types of courses for those worried about the humanities under such a system, although the government adjusts its contributions to education costs based on what it deems national priorities.

NYT: Income Sharing Agreements -- Silicon Valley venture capitalists take on student loans

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Literally Cinderella

Never read a comic in his life

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