If someone takes out a loan, goes to school, and then has to pay off the loan is that also "indentured servitude" in your mind? It just seems like two different ways to finance a purchase (training) that has a future value.
The ISA's that I'm familiar with don't bind the person to a particular employer, have minimum salaries that are required before the payment is taken out of paychecks, etc. It seems very different than "indentured servitude" and much closer to a loan.
Agreed, at least if comparing to American student loans, which certainly come with the same philosophical/ethical "servitude issues".
ISAs seem to align incentives between lender and loan taker better than traditional loans, (although as pointed out not perfectly). More income = more money for both. Most people who are getting training/education likely aims to maximize their income in a 1-2 year time frame.
Now, which one is actually the best deal varies from case to case. If you pay more dollars on average in total with an ISA, that'd be expected but hardly the fault of the ISA issuer. That's just an unfortunate side effect of debt and risk calculations that are true across the board.
> But they are also free of runaway interest and lifelong debt
Federal student loans with an income based based repayment plan are free of both those things (fixed maximum repayment period and fixed interest rates at origination.)
Federal loans have maximum repayment periods of 10-30 years, but that does not mean the loan is forgiven at the end of this period. If you fail to make regular and complete payments, the loan can persist for the entirety of your life.
By runaway interest, I mean compounding debt, not change of interest rate. If payment on a federal loan is low or non-existent, the debt will increase exponentially over time.
Take for example a student who takes ~50K in debt, but fails to graduate or secure income to pay the annual interest.
With a federal loan, payments may be deferred or reduced, but the debt will continue to increase with time. If not payed off, this will last for the student's life.
With some ISAs, there may be no payments required, and the entirety of the debt disappears after X years.
> Federal loans have maximum repayment periods of 10-30 years, but that does not mean the loan is forgiven at the end of this period.
Yes, for income-driven plans that are paid as required, it does.
> If you fail to make regular and complete payments, the loan can persist for the entirety of your life.
If you don't pay an ISA as required it becomes an unpaid debt with all the normal features of unpaid debt, it doesn't just vanish if you fail to pay. So “federal loans don't disappear if you don't pay them”, while true, isn't really a difference.
The ISA's that I'm familiar with don't bind the person to a particular employer, have minimum salaries that are required before the payment is taken out of paychecks, etc. It seems very different than "indentured servitude" and much closer to a loan.