
Lambda’s debt-swapping partnership is disappearing from the internet - aaronbrethorst
https://www.theverge.com/2020/2/12/21135134/lambda-school-students-edly-isa-debt-swapping-partnership-shares-investors
======
rahimnathwani
Assuming investors in these ISAs are rational/smart, they'll take into account
the likely outcomes before deciding how much they're willing to pay.

So, even if Lambda sells each ISA the moment it's signed, they're still just
as incentivised to do a good job. Because the sale price will be determined by
the expected cash flows which, in turn, are affected by how good a job Lambda
school does.

It seems just like any other form of factoring: you've got receivables which
are due in the future, and you're willing to take a haircut to get paid
sooner.

I don't know whether Lambda school provides a good service and/or whether the
ISAs they offer are a good deal for the students.

But the point of the article is that selling the ISAs or pools of ISAs weakens
incentives. I don't see how that follows. If anything, it makes incentives
stronger: if Lambda does a bad job, this will affect the money they receive
_today_ (via sale of ISAs) rather than money they'll receive over time (from
student incomes).

~~~
danso
The WIRED article that Verge references points out a few ways where
securitized debt could provide perverse incentives, particularly in terms of
cost/quality of the teaching:

[https://www.wired.com/story/how-we-learn-lambda-income-
shari...](https://www.wired.com/story/how-we-learn-lambda-income-sharing-
agreements/)

> _Still, that points to a more complicated “incentive alignment” than is
> often described. Deference to outside investors might encourage a school to
> issue lots of ISAs and keep instructional costs low, for example, betting
> high margins on a few successful students will subsidize the other
> agreements, says Julie Margetta Morgan, a fellow at the Roosevelt Institute
> who studies student debt. That’s especially true if it proves difficult to
> link students with jobs. But Allred insists the incentive structure that
> aligns the interests of individual students with the school’s isn’t broken.
> “We still hold the bulk of the risk,” he says. Allred doesn’t tell staff
> which student’s contracts have been financed._

That said, I don’t know enough to think that CDOs in themselves are bad, or in
any way unusual or suspect. But Lambda and Edly refusing to comment and taking
down pages about the CDOs and investments, as DHH tweets about them, makes me
very confused and suspicious.

~~~
rahimnathwani
The example given "betting high margins on a few successful students will
subsidize the other agreements" is a possible strategy, but that strategy
could be attractive/optimal regardless of whether the ISAs are sold.

What about the ISAs being sold to third parties affects the incentives?
Whether or not thet sell the ISAa, Lambda school should be trying to maximise
the margin between the cashflows from the ISAs, and the cost of running the
program.

------
_bxg1
We desperately need an accreditation system for these schools, stat.

FAANG continues to scramble for newhires; what if they created a nonprofit
that audits and accredits coding bootcamps, to juice up the pool of
candidates? Right now it's a massive gamble to sign up for one and hope you're
not being scammed. Once perception catches up to reality it might poison the
very idea of bootcamps in the public consciousness.

~~~
rahimnathwani
"We desperately need an accreditation system for these schools, stat."

I don't know the details, but I like the sound of the approach taken by Make
School: [https://www.dominican.edu/dominicannews/dominican-
announces-...](https://www.dominican.edu/dominicannews/dominican-announces-
computer-science-partnership-with-make-school)

In short, Make School partners with an already-accredited university, under a
scheme which provides it a path to becoming accredited itself.

------
throwGuardian
I've seen a lot of folks criticizing Lambda. As far as I can tell, they
actually offer a chance at a much better life, with no upfront fees -
something even accredited and reputable universities are unwilling to offer.
If ISAs offer lamda better cash flow that doesn't affect the students in any
way, is it really such a bad thing?

~~~
_bxg1
This recent investigation (from the same site) is relevant:
[https://www.theverge.com/2020/2/11/21131848/lambda-school-
co...](https://www.theverge.com/2020/2/11/21131848/lambda-school-coding-
bootcamp-isa-tuition-cost-free)

> From the beginning, however, the online class wasn’t what Surber or her
> classmates had expected. The instructors changed week to week and often
> seemed to have no idea what the students had already covered. The curriculum
> advertised on the website never fully materialized. The online portal where
> they were supposed to find their homework assignments rarely matched up with
> what they were learning.

There are good coding bootcamps, and ISAs can work if they're done right, but
there's also a whole lot of abuse going on in this space right now.

