Hacker News new | ask | show | jobs
by TechBro8615 1884 days ago
Didn't they lie by wrongly saying the loan can't be discharged through bankruptcy? Surely that would make candidates less likely to join Lambda?

Why is it even in their interest to say that? It's not like them saying it makes it true. And if it were true, it would mean that Lambda is a bigger risk for the student who therefore may be less likely to apply.
1 comments
threatofrain 1884 days ago
The worth of the ISA's you sell depend on how easy it is to discharge the loan...
link
TechBro8615 1884 days ago
Wait, people can sell the contracts for their future salary? I had no idea how wild that industry had gotten.

Or do you mean Lambda was selling them to banks?

link
nrmitchi 1883 days ago
Lambda was securitizing the ISAs and selling them to investors on the backend, obviously with a discount based on risk.

Some people treat this like a bad thing, but it's really pretty basic risk-mitigation and cash-flow stabilization. This is kind of like basic factoring, or "modern" solutions like Pipe (https://www.pipe.com/).

There is an argument to be made that it disaligns Lambda and student incentives ("outcome it doesn't matter because Lambda already got paid") but long term, defaulting students would definitely decrease the sales values of the ISAs.

Part of the argument here is that calling these ISAs non-dischargable would lower the risk to the investor, which would make those ISAs worth significantly more.

link
TechBro8615 1883 days ago
> calling these ISAs non-dischargable would lower the risk to the investor, which would make those ISAs worth significantly more

I wonder how true this is. Declaring bankruptcy comes at a huge cost. It's not something people do lightly. Most people, if they have the money to pay back the loan, would probably do so. Once they're in that position (presumably with a stable job), they have little incentive to declare bankruptcy.

link
nrmitchi 1883 days ago
If they are in that position, you're right.

But that goes hand-in-hand with the aligned outcomes; it's best for Lambda if these people get good jobs afterwards, because they're more likely to pay the ISA in full.

If they don't, they're less likely, the risk is higher, and the ISA is worth less (to the investor).

The potential for bankrupcy is also a risk, which lowers the yield. Removing the risk of bankrupcy heightens it.

We could argue about the magnitute of these risks all day; I'm sure people significantly better at math than I am have done a lot of work here.

link