
How to Build an Income Sharing Agreement Product - saarons
https://www.moderntreasury.com/journal/how-to-build-an-income-sharing-agreement-product
======
mdorazio
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
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
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
>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
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
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
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
>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
Glumly inclined to agree with the latter half of your analogy there, that "the
market can remain irrational longer than you can remain solvent" is to
"political parties can remain irrational longer than you can vote." On the
other hand, there's power in numbers, and I keep wondering if some kind of
equivalent to crowdfunding will emerge for lobbying and/or local politics. So
much of the visibility seems to be at the national level, but a ton of the
clout in terms of how things get done occurs on the city, township, county and
state level. On one hand, that makes it a combinatoric explosion of
complexity, in that you have 1:N:N:N just to get up to the state level, but it
also lowers the boundary towards critical mass significantly. What's
interesting here is that it looks like this has already been happening; at
least from my end, I saw a significant amount of this sort of activity in the
2018 midterms. To some, it looked a little bit like a referendum. My question
is how much further is needed for the critical mass to be achieved? Is it
predicated on a generational shift?

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throwaway_law
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.

~~~
Mirioron
At first you mention how higher education doesn't get you a good job anymore,
but then you mention support for a candidate who will make college free. Don't
you see the contradiction here? The reason college graduates have difficulty
finding good jobs compared to the past is because so many people have a
degree. Even if you forgive all of the student loans and make college free,
people still won't find jobs based on college. College might not even get you
anywhere because it'll become a default requirement for every job. There will
be some other criteria used instead and somebody's probably going to make
money off of that too.

There just aren't enough jobs that require the qualifications of English
literature majors or similar.

~~~
pmiller2
That’s still better than the present, where college still doesn’t really get
you anywhere, except in a mountain of debt.

~~~
Mirioron
But if that's truly the case then shouldn't people _not_ go to college? If
there aren't enough benefits then people should be able to realize that, no?

~~~
throwaway_law
a Job isn't the only benefit of an education...an education is a benefit in
and of itself. Society benefits from having an educated public. Society does
not benefit from being in debt.

Your logic is as follows: if college degree doesn't get a job, then don't go
to college.

Your logic breaks down because not going to college isn't going to get you a
job either.

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aripickar
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...](https://www.forbes.com/sites/alisongriffin/2019/07/18/a-rare-
bipartisan-bill-takes-on-student-debt/)

~~~
journalctl
Clearly default and a lifetime of ruined credit is the better option.

~~~
aripickar
I'm saying that bankruptcy at 22 or however young is the much better option.
You get it discharged before 30, and so it doesn't even impact the terms you
get if you're trying to buy a house for a lot of people. If your options are
bad credit for 7 years in your 20's, or 250k in debt, then everyone is going
to choose the bad credit every time.

~~~
MiracleUser
maybe that's how it should be. Then kids wont get approved for 250k loans due
to the risk and colleges will have to either ask for more money upfront (good
luck), expect less students (not good for funding), or lower tuition.

------
_ah
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).

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jedberg
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
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
There is, however, quite a bit more demand for college degrees today than 50
years ago.

------
asselinpaul
Alternatively, [https://leif.org/](https://leif.org/) can manage all of this
for you.

Disclosure: I work at Leif

------
mattmarcus
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-shar...](https://slate.com/business/2014/05/upstart-pulls-income-
share-agreements-in-favor-of-traditional-loans.html)

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
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.

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

------
Spooky23
How gross. Seems like a poorly thought out product -- isn't my incentive here
as a borrower to avoid making documentable income?

~~~
TimPC
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
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
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.

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jrochkind1
So... share-cropping, basically?

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m0zg
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.

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sdan
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
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.

