
Lambda School is reselling their students' ISAs to investors - saadalem
https://mobile.twitter.com/ossia/status/1227719413157310464
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The_Amp_Walrus
Is this a bad thing? Can someone expand on the implications of this? I would
think that it doesn't matter who owns an ISA.

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maest
I can see a couple of negative interpretations:

1\. Lambda school has lost faith in their students or never had faith in the
first place. As a result they're trying to exit the ISA positions.

2\. This is too similar to CDOs, which have caused a financial crisis in the
US before.

3\. People are already worried about student debt, and this is a very similar
type of debt.

4\. Selling ISAs to big bad hedge funds is unsavory, for some reason. People
who were too poor to afford proper education now owe money to the rich people
running investment funds - that sort of thing.

FWIW, I'm not really biting on any of these arguments. These ISAs take a very
long type to pay off, so it makes sense for them to be held by someone with a
low cost of capital. Lamda school is in the business of training people and
getting these ISAs, they're not in the business of holding on to these ISAs
for 10 years (even if they wanted, they're probably not capitalised well
enough for this). Holding onto assets for long stretches of time, that's the
job of financial institutions and investment funds.

This is just run-of-the-mill finance, really. I wouldn't be surprised if this
was the plan from the get-go.

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gwicks56
Doesn't it change the incentive structure though? If Lambda only gets paid
when students get a job, they are much more incentivized to work towards
positive outcomes for the student. If they get paid regardless, then they
might as well enroll as many people as possible and care much less about their
outcomes?

I think schools like Lambda have a massive role to play in education, the
problem is it seems like the vast majority are predatory ( not saying Lambda
is, they seem like one of the more honest ones). But if the financial
realities of running them means packaging students into CDO's, i fail to see
how market forces won't force them all into predatory practices?

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adrianmonk
True to some extent, but don't investors need some way to figure out what an
ISA is worth when they buy it from a school? Assuming they can get access to
the numbers, wouldn't that valuation be based on stuff like graduation rates,
placement, and alumni salaries?

If so, then if the school ever wants to sell ISAs again, then they have an
incentive (at least indirectly) because future years' cash flow will depend on
how well they perform on whatever stats ISA buyers look at.

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unlinked_dll
Pardon the sarcasm

Investors would never be fooled into purchasing garbage debt made to look
great. And banks would never risk it for the biscuit since the government
would never bail them out.

Another way to look at the incentive structure is that they could be driven by
volume and not caliber. It depends on how well investors are able to vet the
ISAs and if the ones purchasing them are the ones left holding the bag when it
goes up in smoke.

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MarkMc
The blowback on this is interesting. If you find out that your bank sells your
mortgage obligation to someone else, you don't really care. But if you find
out that your coding school sold your ISA obligation you might feel it
indicates a lack of trust and therefore be less likely to pay.

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razakel
It indicates that what they sold you wasn't worth the money _and they 're
fully aware of that_.

Real estate appraisal is a regulated profession - get two people to value your
house and they'll come up with similar amounts. Ask someone to value an
education and the answers will be anywhere between "you could get that for
free at the library" through to tens of thousands a year.

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liamcardenas
Or they need cash now (for scaling, for instance) instead of later.

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unlinked_dll
They don't need to scale, they need to pump out higher quality graduates.

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theodorewiles
I think they should have to disclose the price they sold them for - would be a
great way to get a real valuation on the degree.

