[HN Gopher] Why income share agreements did not work out
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Why income share agreements did not work out
Author : jger15
Score : 163 points
Date : 2022-03-23 19:15 UTC (3 hours ago)
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(TXT) w3m dump (twitter.com)
| legitster wrote:
| Yeah, I remember reading about these when they launched and on
| paper they seemed like such a bad deal. The only group of people
| who would benefit from them over traditional loans are people who
| know they would never be able to pay off the equivalent debt.
|
| > credit scores were the most predictive variable of good
| participant behavior for us.
|
| Unrelated, an insurance adjuster once told me that, given two
| people of the same age buying the same car, credit score is the
| number one determinant which one will be more likely to get into
| an accident. Luckily (or unluckily, depending on your position)
| most states make it illegal for determining insurance premiums.
| actually_a_dog wrote:
| > Yeah, I remember reading about these when they launched and
| on paper they seemed like such a bad deal. The only group of
| people who would benefit from them over traditional loans are
| people who know they would never be able to pay off the
| equivalent debt.
|
| Right, which goes to the point the author made about these
| agreements seeming exploitative. Why exactly _aren 't_ they
| (education ISAs) exploitative is my question. They're
| essentially loans with much fuzzier terms, and the Consumer
| Finance Protection Bureau agrees [0].
|
| But, for the sake of accuracy, one should note that the
| author's company wasn't offering education ISAs. They were
| operating on more of a talent agency model, and their basic ISA
| was 10% of pre-tax income for 18 months [1]. I think 18 months
| is a reasonable term, and 10% could be a reasonable percentage,
| but, again, the terms are inherently opaque, because there's no
| way for the consumer to predict what the outcome would be.
|
| What I wonder is what sort of jobs/careers the clients were
| ending up in, and where they started. Knowing that would make
| it possible to judge whether the outcomes were worthwhile or
| not. We're not talking about sending people back to school to
| earn additional qualifications, so, I'm guessing it wasn't a
| case of people landing $100+K/year engineering jobs and such.
| They say their aim is to be able to take someone making $40k
| and get them to $52k, possibly in part by moving cities. I
| wonder how satisfied these early clients were with what they
| received.
|
| ---
|
| [0]: https://www.consumerfinance.gov/about-us/newsroom/cfpb-
| takes...
|
| [1]: https://techcrunch.com/2019/11/21/placement/
| [deleted]
| Johnny555 wrote:
| _credit score is the number one determinant which one will be
| more likely to get into an accident_
|
| I'd like to know how that differs from just plain income? The
| more money you make, the easier it is to keep clean credit. But
| it also gives you more control over driving to let you be a
| safer driver.
|
| Overnight snowfall made the roads slippery? An office worker
| can go in late, or just work from home for the day, but the low
| paid service worker has to go in or he doesn't get paid (or
| might even lose his job).
|
| Feeling sick today? Office worker can just call in sick, the
| service worker doesn't have many (or any) sick days, so he
| drinks half a bottle of cough medicine and drives to work
| anyway.
|
| Going out for a drink after work? Well paid worker can take an
| Uber home, or get a hotel room in the city, an option that the
| low paid worker doesn't have since even if he took Uber home,
| his car is parked on the street and is going to get ticketed or
| towed.
|
| Running late for work? Office worker can call in to the meeting
| or reschedule his morning meeting (and just shrug and say
| "traffic" when he shows up late), low paid worker is going to
| get his pay docked or lose his entire shift for being 5 minutes
| late so he's gotta drive fast to make it.
| throwaway0a5e wrote:
| >I'd like to know how that differs from just plain income?
| The more money you make, the easier it is to keep clean
| credit. But it also gives you more control over driving to
| let you be a safer driver.
|
| Doctor and nurse who work in the same hospital and have
| basically the same commute buy the same car. Doctor might
| bump someone in rush hour gridlock. Nurse is gonna nail a
| deer at 60mph at 4am. Doctor is gonna park it in the garage.
| Nurse's car is gonna get hit on the street. Doctor is gonna
| rent the Home Depot truck. Nurse is gonna bust the windshield
| trying to get a pipe in there. Etc. etc. There's tons of
| situational factors that make it so wealthier people can
| afford to be way easier on their possessions.
| snotrockets wrote:
| > I'd like to know how that differs from just plain income?
| The more money you make, the easier it is to keep clean
| credit. But it also gives you more control over driving to
| let you be a safer driver.
|
| Basically credit score is a measure of how you manage debt,
| which is easier with higher income, of course. An edge case I
| myself recently run into is that having no debt would lower
| your score, as having no debt provides no evidence of how
| well you can manage it.
| kansface wrote:
| Maintaining a really good credit score requires deliberate
| action and high conscientiousness over a long time. That is
| just a really strong proxy for success in life. There are
| loads of people with bad credit and high income - chronic
| gamblers, for instance.
| Johnny555 wrote:
| No doubt there are high income people with low credit and
| low income people with high credit. But my point is that
| it's a lot easier to keep a good credit school on high
| income than it is on low income.
|
| When your cost of necessities for living (food, rent,
| utilities, etc) is close to your total income, all it takes
| is a small disruption in your income to cause a cascade of
| credit lowering events that are hard to dig yourself out
| of.
| s1artibartfast wrote:
| This is all true, but beside the point.
|
| The purpose of credit scores is to predict outcome, not
| measure the effort or intentions of people to overcome
| their personal situation.
| [deleted]
| legitster wrote:
| The implication the person was giving is that people who have
| debt problems are likely people who struggle with decision
| making, with lots more downstream effects than just credit.
|
| So in an unusual way, credit could almost be an approximation
| of EQ.
| Johnny555 wrote:
| But people who have debt problems also tend to have lower
| income, and it can't all be blamed on "poor decision
| making". My credit rating was abysmal shortly after college
| when I was in a low paid job and juggling payments around
| based on what bills could afford to pay and shifting debt
| to credit cards. And that low credit rating meant that the
| cost of credit was high, making it that much worse.
|
| But now that I have a good income, it's easy to pay bills
| on time, or even early, even if a payroll snafu that's not
| even my fault means my paycheck is late, I have plenty of
| cash in the bank to pay bills.
| TulliusCicero wrote:
| > I'd like to know how that differs from just plain income?
|
| Because it indirectly measures responsibility to a certain
| extent, though of course there are exceptions. And there's
| not really another, better way to quickly check if someone is
| generally responsible.
|
| And you can definitely find lower income people with good
| scores and higher income people with bad ones.
| toomuchtodo wrote:
| I don't care for this analogy, as you can be as responsible
| as possible and still have your credit tarnished due to
| microeconomic black swan events (and there are numbers
| thrown about that a majority of citizens can't afford a
| $1000 financial emergency without relying on subprime
| credit or family). What credit scoring for insurance
| purposes _does_ due is suss out who is more likely to make
| a claim because their finances are marginal and they need
| the payout versus relying on their own finances for minor
| claims. Similar to folks who can 't afford to replace their
| roof, and so they make a claim with a public adjuster to
| have the insurer cover the cost (very popular strategy in
| Florida for example, causing insurers to flee the state or
| stop insuring homeowners seeking coverage if their roof is
| over 10 years old).
|
| If one is well to do, they're going to avoid making a claim
| unless the economic cost of the event is catastrophic (in
| which case, everyone is making that claim), and so the
| credit score is being used as a proxy for household
| financial strength (which is lazy, but easier than ongoing
| income and asset surveillance, although some credit card
| companies do this for credit risk management [Amex comes to
| mind]).
|
| EDIT:
|
| > That's the bleeding heart take, yeah.
|
| Guilty as charged.
| eigenvalue wrote:
| Whether or not there are exceptions (which of course
| there are) doesn't mean that there isn't a general
| pattern at work that is robust enough to make it a very
| strong predictor.
| TulliusCicero wrote:
| That's the bleeding heart take, yeah.
|
| The truth is that credit scores do what you say, AND they
| also measure responsibility in practice, enough to where
| you can find all sorts of correlations.
| spiznnx wrote:
| I had a poor friend who couldn't afford new tires. She would
| buy used tires, with little life left, and replace them more
| frequently. It was more expensive in the long run, and less
| safe. If she had access to credit she could have bought new
| tires on credit.
|
| It is also just a proxy for income, which is harder to
| quickly/cheaply verify than a credit score.
| frederikvs wrote:
| See also : the Sam Vimes "Boots" theory of socioeconomic
| unfairness.
| ars wrote:
| I've always hated that story, because if you go into a
| "goodwill" type store and look at the used shoes you'll
| quickly realize it's not actually a true story.
|
| There are places where it's true - for example short term
| rent. And buying in bulk.
|
| Buying used is not one of those places. Buying used is
| the correct thing to do for someone with low income.
| mrguyorama wrote:
| The story is not used boots vs new, it's shitty, Walmart
| brand boots vs being able to afford the really nice L.L.
| Bean boots.
|
| It's starting to lose its meaning unfortunately, as most
| companies realize you can just charge a lot of money for
| the cheaply made shit and most consumers just don't have
| easy options to avoid buying it.
| ars wrote:
| > It was more expensive in the long run, and less safe.
|
| Are you sure about that? It's more annoying to have to
| change them, but as someone who bought some long ago, it
| was cheaper than new, even taking into account how much
| wear there was.
|
| Most used tires actually have lots of wear left - people
| throw them out because they get a puncture and want all the
| remaining tires to match. Or even more common they have 2
| good ones in back, and 2 bad in front (they forgot to
| rotate tires), and just replace all 4.
|
| Those 2 good ones are sold for much less than new, but
| they're almost as good as new.
|
| > If she had access to credit she could have bought new
| tires on credit.
|
| Once you pay interest on that credit, there's no way she
| would have come out ahead. Used tires are the correct thing
| to do here.
|
| > It is also just a proxy for income, which is harder to
| quickly/cheaply verify than a credit score.
|
| If you look at the other replies you'll see that credit
| score is actually not a proxy for income. It measures
| responsibility.
| spiznnx wrote:
| I'm glad you got a good deal out of used tires. I'm sure
| the value is there if you look. Personally I've bought
| new _good_ tires for less than $100 /tire after rebate,
| and having them professionally installed costs over $100
| where I live, so it's never seemed worth it to me.
|
| >If you look at the other replies you'll see that credit
| score is actually not a proxy for income. It measures
| responsibility.
|
| I do see now the other reply with the Fed's article about
| the low correlation (0.29) between income and credit
| score. That's pretty interesting/surprising to me; I
| stand corrected.
| Johnny555 wrote:
| _It 's more annoying to have to change them, but as
| someone who bought some long ago, it was cheaper than
| new,_
|
| The last time I got my tires changed, I paid $24 for
| mounting and balancing each one. Low end new tires cost
| around $60, so even if the used tires were free, it
| wouldn't take many changes for them to be more expensive.
| Plut it takes a couple hours to drive to the tire store
| and wait around to get them changes, so that's a cost
| too.
|
| But I didn't buy the cheap $60 tires, I bought the $100
| tires with longer treadwear warranty and better
| performance in rain/snow... another advantage of having
| more money - I can reduce my chance of getting into an
| accident by spending more on better tires.
| [deleted]
| s1artibartfast wrote:
| >I'd like to know how that differs from just plain income?
|
| It has basically all the same advantages you mentioned but
| also filters out high earners with rash behavior and or low
| responsibility.
|
| I know plenty of high earners with low reliability and
| impulsive behavior.
| rory wrote:
| Is there any actual evidence that what you're saying is the
| reason for the difference though? It's incorrect that credit
| scores are highly correlated with income [0].
|
| Most accidents are caused by things that are pretty ordinary
| forms of irresponsibility [1]. A credit score is a (flawed)
| measure of financial responsibility. That seems like a much
| more reasonable, although less narratively satisfying,
| connection.
|
| [0] https://www.federalreserve.gov/econres/notes/feds-
| notes/are-... We find a low correlation
| between credit score levels and income, with the correlation
| coefficient around 0.27 for income levels and 0.29 for log
| income.
|
| [1] https://www.iii.org/table-archive/21313
| Driving too fast for conditions or in excess of posted limit
| or racing 8,746 17.2% Under the influence of
| alcohol, drugs, or medication 5,164 10.1 Failure
| to yield right of way 3,728 7.3 Failure to keep
| in proper lane 3,381 6.6 Operating vehicle in a
| careless manner 3,302 6.5 Distracted (phone,
| talking, eating, object, etc.) 3,008 5.9
| Johnny555 wrote:
| _We find a low correlation between credit score levels and
| income,_
|
| Interestingly, these two articles claim a correlation:
|
| https://bluewatercredit.com/is-there-a-link-between-your-
| inc... Low income (50% or less of MFI) =
| 664 median credit score Moderate Income (50% to 79%
| of MFI) = 716 median credit score Middle Income (80%
| to 119% of MFI) = 753 median credit score Upper
| Income (120% of MFI or more) = 775 median credit score
|
| This one shows similar numbers:
| https://www.valuepenguin.com/average-credit-score#income
| rory wrote:
| Neither of your links contain an actual correlation
| measure, or links to actual source data. To even call
| them "articles" is a stretch, they appear to essentially
| be ads / link magnets (which as a category have an
| obvious bias).
|
| You have to like, control for things and stuff..
| Johnny555 wrote:
| I'm not familar with Fed notes, is there an actual
| published study behind that Fed note?
|
| The amount of data and studies out there to correlate
| income level and credit rating is surprisingly low. The
| data set used by the Fed seems surprisingly weak, a self-
| reported survey sent out with credit card offers:
|
| We use the Mintel/Comperemedia data (the Mintel data
| henceforth) that provide a unique combination of credit
| scores and survey-based income data for the same
| consumers. The Mintel data set is a monthly proprietary
| survey of credit card offers, with about 2,500 consumers
| selected to participate in the survey each month.
| Participants of the Mintel survey have very similar
| educational attainments and income to other nationwide
| representative household surveys, such as the Survey of
| Consumer Finances. The Mintel sample, however, has a
| somewhat higher average age and greater share of white
| consumers.
| leetcrew wrote:
| if true, that doesn't look like a very strong correlation
| to me, at least at first blush. the difference between
| high and low income is 111 points on a scale that goes
| from 300 to 850?
| Johnny555 wrote:
| In terms of getting a loan, anything below 580 is
| considered "very poor" (though I don't now how FICO
| relates to car insurance pricing). So the usable range if
| you're looking for good rates is more like 580-850, or
| 270 points.
| rtlfe wrote:
| > Most accidents are caused by things that are pretty
| ordinary forms of irresponsibility
|
| This is a big diversion form the actual point, but it's
| important. The vast majority of these crashes (the word
| "accident" is rarely used by news/DOTs/etc anymore) could
| be prevented by designing streets to control speed and
| improve visibility. So I'd argue that they're caused by
| poor design which comes as a result of misplaced societal
| values.
|
| Re the second item in that list of causes, an interesting
| article came out a couple days ago:
| https://www.bloomberg.com/news/articles/2022-03-21/make-
| the-...
| rory wrote:
| Yes, society can and should do more to encourage people
| to drive safely, but that doesn't mean it's impossible to
| do so.
|
| The same logic applies to all sorts of things like
| obesity, smoking, etc.. These things obviously have
| multiple causes-- some societal, some individual. It's
| not a binary.
| [deleted]
| xondono wrote:
| > could be prevented by designing streets to control
| speed and improve visibility
|
| And if you make school tests easier, everyone will get a
| passing a grade, but that's not the point.
|
| The point here is that responsibility is not an area
| specific skill, people who are financially responsible,
| tend to drive responsibly, people who are reckless
| drivers, tend to be reckless spenders too.
| rtlfe wrote:
| > but that's not the point.
|
| Yes I literally started my comment by explaining that I
| was ignoring the point to make a different one.
| teej wrote:
| There are road designs that prevent driving while drunk
| or texting?
| rtlfe wrote:
| There are road designs that significantly reduce the
| consequences of those actions. Narrow lanes with chicanes
| prevent driving at high speeds. Concrete barriers prevent
| cars from swerving into cyclists and pedestrians.
| Roundabouts eliminate left turn conflicts.
| Johnny555 wrote:
| Maybe not drunk driving, but road design can reduce
| distracted driving crashes:
|
| https://news.cision.com/property-casualty-insurers-
| associati...
| ballenf wrote:
| Would be interesting to investigate a correlation between a
| low-income person with a relatively high credit and an above-
| average increase in their income and net worth over time.
| TulliusCicero wrote:
| Yes. There are many complaints about credit scores, often
| justified, but it's also true that they remain effective at
| predicting good behavior in aggregate, and also they're easy to
| use.
|
| The side arguing that we shouldn't use credit scores this way
| usually don't bother arguing for a viable alternative, because
| it doesn't align with their own needs or ideology. _They_ don't
| have to worry about people repaying an income sharing agreement
| or loan, so the fact that not using credit scores makes
| managing those things harder means nothing to them.
| imachine1980_ wrote:
| Are easy for the lender, mean they are good for the society ?
| TulliusCicero wrote:
| Potentially, sure. If you can't measure risk effectively,
| that means you'll have to offer everyone the same terms.
| Since some portion of the population probably 'deserves'
| worse terms, they'll take out more loans than they
| otherwise would, using the better terms, which further
| increases the aggregate risk. So, the equilibrium repayment
| terms you settle on will probably be worse on average than
| otherwise. Especially since a lack of credit scores will
| mean less disincentive to renege on the agreement via non-
| payment.
|
| Honestly, loans seem like the least objectionable use of
| credit scores to me. Repayment of debt is the main thing
| they're built around.
| elliekelly wrote:
| I wonder what, if any, correlation exists between a low credit
| score and sleep deprivation. It's not difficult to imagine that
| someone having trouble paying the bills also has trouble
| getting enough sleep.
| rurp wrote:
| > most states make it illegal for determining insurance
| premiums.
|
| That's surprising to me given all of the other ways credit
| scores are used. Is there a rational reason to allow credit
| scores to be factored into hiring decisions but not insurance
| premiums? Or is this just the law being messy and inconsistent
| in reality?
| CapmCrackaWaka wrote:
| I was an auto insurance actuary in a different life. Most
| states do NOT ban the use of credit in auto insurance
| pricing, but there are some exceptions. My company actually
| decided not to do business in California because we could not
| use credit as a factor. The difference in premium due to
| credit could often be as high as 12x between the highest and
| lowest groups.
|
| Some states (Maryland comes to mind) do limit the maximum
| surcharges you can implement because of credit, although
| there are sneaky ways around this that everyone uses, like
| underwriting tiers (GEICO) or using credit in multiple places
| (Progressive).
| Step888 wrote:
| > Is there a rational reason to allow credit scores to be
| factored into hiring decisions...
|
| You'll have to be more specific.
|
| Because I live in a State where credit scores can not be used
| for hiring decisions unless you plan to give that person
| signatory powers over your company checkbook/company credit
| card, or unless that person works for law enforcement, or
| unless that person will have to deal with lots of cash at any
| one time, etc.
| twblalock wrote:
| It's nice to think there is a large untapped market of people who
| are ignored by traditional lenders, who have old-fashioned ways
| of measuring applicants and overlook people who don't fit the
| traditional mould.
|
| There are a lot of important points in the thread, such the
| difficulty of enforcing terms compared to traditional loans, and
| the amount of cash needed up front which can only be made back
| over time -- but solving those problems wouldn't fix the
| fundamental problem that it's hard to succeed in lending when
| your target market is comprised of people who are unlikely to pay
| you back.
|
| The ISA startups learned that the traditional lenders were right,
| including in their use of credit scores to evaluate applicants --
| a lot of people ignored by traditional lenders really just aren't
| people you want to lend money to.
| danielmarkbruce wrote:
| > It's nice to think there is a large untapped market of people
| who are ignored by traditional lenders, who have old-fashioned
| ways of measuring applicants and overlook people who don't fit
| the traditional mould.
|
| True. I'm amazed that this line resonates with anyone, ever.
| Banks will take every cent they can get, the idea they are just
| leaving money on the table is... not backed up by history (see
| 2000s house lending....) Credit is available in crazy high
| amounts to anyone who can pay it back.
|
| There is a large market who are usually ignored (but not
| always...) - people who need money but cannot pay it back. That
| is a social issue to solve, but it's not going to be solved by
| a for profit finance company.
| groby_b wrote:
| Also a good reason: We as a society decided indentured servitude
| is not a concept we'd like to pursue.
| omginternets wrote:
| >Also, participants judge educational success in many ways that
| don't trivially reduce to "make more money".
|
| This is something the VC bean-counters will forever struggle to
| wrap their minds around. Not everything is about money, even in
| commerce.
| SkipperCat wrote:
| I think Europe has an ISA program for higher ed. They call it
| "free college" and the ISA kicks in via a progressive tax system.
| Funny (sad funny) how when it is put into the private sector in
| America it basically collapses.
| throwawayboise wrote:
| Europe's "free" college is only available to those with the
| aptitude to likely be successful. Kids are separated into
| college-bound and vocational educational tracks somewhere
| around the middle school age.
| Jensson wrote:
| Everyone can attend college in Europe, just that you might
| need to retake some high school courses if you didn't take
| them. It is exactly the same system as in USA where some
| students have to do 4 years of college while others can use
| AP credits to skip a year and finish in 3. In Europe we just
| make those AP credits mandatory and students have to take
| them at separate schools before they attend, which is also
| why students in Europe finish college in 3 years.
| baobabKoodaa wrote:
| > Europe's "free" college is only available to those with the
| aptitude to likely be successful. Kids are separated into
| college-bound and vocational educational tracks somewhere
| around the middle school age.
|
| What a weird statement. I don't know why you put "free" in
| air quotes, when University education in Europe (or at least
| in Finland) is actually free. Also, nobody separates kids
| into vocational vs college-bound schools, kids themselves can
| choose. And if you later regret going to vocational school,
| you are welcome to change your mind later. Heck, even if you
| apply to a really competitive University track and you don't
| get in, you are free to attend lectures and attain course
| materials without being officially admitted into the
| University - this again is free.
| SkipperCat wrote:
| I think that's actually a good thing. We fetishize college in
| America, telling everyone that it is the only path to a
| successful future. I think this has duped people into taking
| on student loan debt, only for them to find out they would
| have made more money as a plumber or electrician.
|
| There are plenty of vocational opportunities out there that
| can provide a high standard of living and also a rewarding
| career.
| imtringued wrote:
| Don't worry. German public schools are a complete joke
| compared to the first semester at any German university. Even
| if you are on the "college bound" track they won't think
| twice about tossing you away.
| SkyBelow wrote:
| This, and similar differences, seem to be completely
| forgotten about when people bring up the European model for
| college. It gets tiring pointing it out because the normal
| reaction is to ignore it entirely. Rarely is useful
| discussion produced on what purpose a college should serve
| and how the European model is in contradiction to some of the
| underlying philosophy advocating for it (specifically around
| the idea of who should college be for).
| Aerroon wrote:
| "Free college" means that the 60% of Europeans who don't go to
| college pay for the 40% that do. This would be the poor
| subsidizing the rich.
|
| VAT and payroll taxes often make up a larger portion of the
| budget than income taxes. These usually are not progressive.
| xondono wrote:
| The main difference is that Europe education also comes with
| thousand of strings attached.
|
| In Spain for instance, it isn't really free (though it's cheap
| compared to the US, around 2.8-3k$/y) but you absolutely get
| what you are paying for.
|
| I know people who where on meetings deciding the country-wide
| "update" to the curriculum, and the main reason for vetoing new
| topics was that it displaced outdated topics for which college
| X had an expert that was "too old to learn new things, but
| young enough that he had at least a decade before retiring"
| (their words).
| igorkraw wrote:
| "Europe" doesn't exist for these purposes, the countries vary
| wildly, with the only thing that stays constant being that it
| won't by default saddle you with crushing student debt like
| the US. The UK has been steadily increasing fees, while e.g.
| Germany, Norway and Denmark _pay you_ for studying, with the
| German voters successfully lobbying against attempts to
| introduce fees while I was studying. The German _university_
| system at least is also quite robust and egalitarian in the
| sense that there are many avenues into university and it is
| truly free - whole also being high quality (in my opinion).
| Where Germany is comparatively behind I 'd secondary
| education - the three tier system sucks and I can't wait
| until the Finnish system properly takes over this continent.
|
| Health care and university _education_ are things that Europe
| just does systematically more efficient than the US in the
| sense of cheaply providing high quality to lots of people.
| Research I 'd be open to debate and business it has to be
| said the US is miles ahead of e.g. Germany (I'm so jealous of
| California's NDA and employee IP laws)
| yhoiseth wrote:
| Interesting take -- hadn't thought about it that way before.
|
| There is one crucial piece missing, though: universities'
| incentives. At least in Norway where I live, universities are
| paid the same for many STEM, humanities and social sciences
| programs. This causes an oversupply of e.g. historians compared
| to e.g. software developers, as universities are free to ignore
| labor market realities.
| bachmeier wrote:
| After having seen people enter into ISAs (not this one) I'd avoid
| them like the plague. They might be okay for a traditional
| university. You could do the math and see what it says. For other
| institutions it's a scam.
|
| There's a serious incentive problem and I'm not talking about the
| student. The company put literally nothing into it. A few
| "lectures" to provide "training" and that was it. No help lining
| up jobs. No preparation for interviews. The "teacher" had no clue
| how to teach and anyway the material was useless. Nobody would
| hire you based on that material. An ISA works well if you get a
| share of someone else's income and don't have any costs.
| actually_a_dog wrote:
| https://threadreaderapp.com/thread/1505923007096700939.html
| Gunax wrote:
| The key takeaway:
|
| > Better than an ISA is an income-dependent loan with some
| minimum amount that must be paid back regardless of the program
| outcome.
|
| As for collection, I suggest structuring it as a loan, but with
| an 'income share' option in the contract. That is: participants
| are legally getting a loan, but the loan has an option to pay
| back less via income share. Dont pay? Then just pursue them for
| the loan.
|
| > But people with high credit scores tend to have better, cheaper
| options than ISAs. Also, using credit scores for ISAs is...
| largely missing the point.
|
| The self-selection problem is actually identical to loans. If you
| offered loans without checking credit score, you would end up
| with the exact same issue--people with poor credit would jump at
| the chance, and people with good credit would decline and pay
| upfront because they can.
| gnicholas wrote:
| It would be interesting if you could create incentives to prod
| folks in the right direction and align incentives. For example,
| you could reward high-earning students by giving them a cut of
| income generated from students who follow. Or feature successful
| students in advertising materials in a way that makes them proud
| or gives them more career options. Something akin to a Dean's
| List.
| Step888 wrote:
| > For example, you could reward high-earning students by giving
| them a cut of income generated from students who follow.
|
| I know this is not what you're suggesting, but your post just
| reminded me of something. Many of those schools offer anywhere
| from $100 to $3,000 referral bonuses to alumni (or influencers)
| who refer new students to it. This can be a very perverse
| incentive.
|
| So if you ever speak to an alumnus of a coding bootcamp, make
| them believe that someone else already referred you to their
| bootcamp. They're much more likely to tell you the truth about
| their experience if they know they can't earn a commission from
| you.
| s17n wrote:
| If you are _actually_ producing high demand graduates, you will
| be able to make plenty of money by charging recruiters / hiring
| companies for access to them. None of these programs use this
| model for a simple reason, they are not actually producing high
| demand graduates.
|
| To be clear, I have no idea what life is like outside of the
| world of selective schools and employers - as far as I know,
| Lambda/Bloom actually delivers on their goal of improving their
| student's employment prospects. But the fact that they need to
| charge the students at all implies we're not talking about
| anybody getting a FAMGA job or similar.
| soneca wrote:
| Your criteria for "high demand graduates" is getting into a
| "FAMGA job or similar"?
| rahimnathwani wrote:
| Why would FAMGA companies need to pay the school?
|
| Wouldn't the schools' students graduates apply there anyway?
|
| I mean, if FAMGA companies need to pay recruiting fees for
| entry-level roles, why doesn't Stanford get paid recruiting
| fees?
| xmprt wrote:
| > why doesn't Stanford get paid recruiting fees
|
| Stanford and most tier 1-2 colleges do get paid recruiting
| fees. If you've ever worked with a college career center or
| talked to a recruiter who has, you'll know that it costs a
| ton of money to set up a career fair booth or organize a
| talk.
| marcinzm wrote:
| > But the fact that they need to charge the students at all
| implies we're not talking about anybody getting a FAMGA job or
| similar.
|
| So? Engineering pays much better than most industries so even
| if you're not getting into FAMGA it's still a success income
| wise.
| sandofsky wrote:
| > as far as I know, Lambda/Bloom actually delivers on their
| goal of improving their student's employment prospects
|
| The root problem seems to be that most students don't end up
| finding jobs.
|
| According to leaks, only 27% of graduates ended up making over
| $50k, which is the threshold where they had to pay back the
| company. Each student costs the company $13k, with $2,500 in
| CAC alone. At the time, the ISAs maxed out at $30k, which you'd
| hit way below the FAANG scale of wages.
|
| https://www.businessinsider.com/lambda-school-promised-lucra...
|
| Let's say you have a cohort of 100 students. It costs $1.3m to
| train them. 73 pay back $0. Even if the remaining 27 end up in
| FAANG jobs, you only make back $810k.
| clpm4j wrote:
| And from what I can tell, the root of the most-students-
| don't-find-jobs problem is that as much as people love to
| promote coding as being something for everyone, the reality
| is that it is not. It is actually really hard to become (and
| stay) a good software engineer. You have to really want it
| AND work really hard at it. And a lot of the people attracted
| to these ISA bootcamps are people who don't like their
| current career/job/trajectory and have heard that software
| pays well, and maybe they've done some Hello World tutorials
| that give you a bit of a rush but don't scratch the surface
| of what this career actually entails. Then when these people
| get 2 months in the bootcamp they realize that software
| engineering is difficult, and requires possibly more
| strenuous mental work than they've ever done before, but now
| they're on the hook and it's not easy to reverse course, so
| they finish the bootcamp with a half-hearted desire and poor-
| to-mediocre skills that hundreds of thousands of other
| wannabe devs from all over the world already have, and then
| they get smacked in the face with 6 rounds of technical
| interviews that they can't pass. It's not a good scenario.
| sandofsky wrote:
| > And a lot of the people attracted to these ISA bootcamps
| are people who don't like their current
| career/job/trajectory and have heard that software pays
| well, and maybe they've done some Hello World tutorials
| that give you a bit of a rush but don't scratch the surface
| of what this career actually entails.
|
| Another possibility is that these people work incredibly
| hard, and have everything it would take to become an
| amazing software engineer, but (almost) nobody can develop
| those skills within a few months.
|
| > Then when these people get 2 months in the bootcamp they
| realize that software engineering is difficult, and
| requires possibly more strenuous mental work than they've
| ever done before, but now they're on the hook and it's not
| easy to reverse course, so they finish the bootcamp with a
| half-hearted desire and poor-to-mediocre skills that
| hundreds of thousands of other wannabe devs from all over
| the world already have, and then they get smacked in the
| face with 6 rounds of technical interviews that they can't
| pass. It's not a good scenario.
|
| I suspect "wannabe devs" are a straw man that makes us more
| comfortable with watching other people struggle to get a
| job in coding. But of the people who believe you can become
| a professional developer in a few months, how much can you
| blame them when that's what the bootcamp fed them?
| Manuel_D wrote:
| > you will be able to make plenty of money by charging
| recruiters / hiring companies for access to them
|
| How? What prevents those recruiter from just contacting your
| institution's graduates over LinkedIn?
|
| Sound a lot like the dog-walking app that found themselves with
| an unreliable business model because dog owners and walkers
| just started using cash and circumventing the app.
| cglee wrote:
| This is a smart comment because this is exactly what we run
| into (I operate a coding school that uses ISAs). Employers
| love our graduates, but if we charged employers, we'd have to
| play a cat and mouse game of "please don't contact our
| students directly" or "please don't apply to their website
| and go through me". By charging students, we can be at ease
| with making introductions or promoting employer/student
| activities without having to police their communication.
|
| That said, I believe there's a lot more we can do to help
| ease the financial burden from students and I love the
| direction of trying to move the cost of education from
| students to employers. I'm working on that.
| culi wrote:
| Interestingly enough this exactly the model that the Recurse
| Center[0] uses and it's completely free to do. However, you
| have to be accepted to attend
|
| [0] https://www.recurse.com/
| Spooky23 wrote:
| This reminds me of the vapid, self-serving farewell letters you
| would find on fuckedcompany.com during the dotcom implosion.
|
| ISAs failed because they are a stupid idea that rips off
| consumers. Most people smart enough to qualify are suave enough
| to notice this. These exist to take advantage of naive people.
|
| Investors with money like to keep it, and there's so much risk
| involved in the process they need to rip you off to make a
| margin. So they sell you dreams and deliver a worthless product,
| financed with a novel predatory financing scheme.
|
| (This isn't a new scam either - certification mills used to do
| this with CCNA and MCSE certs years ago, except they usually
| targeted federal funds for displaced workers instead of the
| convoluted modern bond indenture model)
|
| I do volunteer mentoring as a service project type of thing, and
| one of the kids I worked with was attracted to one of these. I
| refocused him to a community college program where for ~$8,000 he
| has an associates degree and superior skillset. He got a great
| job and is positioned to further his education if he decides to
| do so.
|
| The gross promotion of these schemes really affected my view of
| some of the tech luminaries who shamelessly pumped it.
| vyrotek wrote:
| Austen from Bloom (Lambda School) had some interesting thoughts
| on this as well.
|
| https://twitter.com/Austen/status/1506072723302207494
| [deleted]
| castlecrasher2 wrote:
| >We found indicators far more predictive than FICO.
|
| Would be interesting to know more details about these
| indicators.
| sandofsky wrote:
| His actions speak louder than his words. Along with the name
| change, the company pivoted to pushing high interest (12.5%)
| loans on students.
|
| The ISAs also underwent dramatic changes. They now last up to
| eight years, max out at $42k, and apply to any job, whether or
| not it's tech. You could attend the program for a few months,
| drop out once you realize it's a disaster, get a job four years
| later as a truck driver, and end up on the hook for your full
| ISA.
| indymike wrote:
| My daughter did an ISA for a six month digital marketing
| bootcamp. Terms were a capped ($40K total payback) 1/2 of income
| over $40K for 5 years, 0% interest.
|
| On one hand, the total payback would be $40K for six months of
| school. That is really high even for a top-tier college.
|
| On the other had, she has ended up going from $30K/year to about
| $50k/year and is paying $5000 per year towards her ISA. So her
| income went up by $20K and she's keeping $15k of it. That's a
| pretty big win - so six months of school, increase in net income
| of 50%. Not bad.
|
| So where's the real problem? For every person like my daughter,
| there are lots of people who spend six months, and end up not
| making enough money to pay back the ISA. There's a lot more to
| improving your income than going to school. Everything from
| grooming habits to interpersonal skills to punctuality. The
| school was taking on immense risk of getting no money from many
| of the students.
| baobabKoodaa wrote:
| > On the other had, she has ended up going from $30K/year to
| about $50k/year and is paying $5000 per year towards her ISA.
| So her income went up by $20K and she's keeping $15k of it.
| That's a pretty big win - so six months of school, increase in
| net income of 50%. Not bad.
|
| That's 50% increase in gross income, not net income.
| ngngngng wrote:
| > Better than an ISA is an income-dependent loan with some
| minimum amount that must be paid back regardless of the program
| outcome.
|
| Sure, but this is just about the least sexy thing I've ever read.
| This is the sort of boring, incremental improvement that the
| world actually builds on, but I'm not sure it's going to attract
| outrageous amounts of investor capital and make you the hippest
| new company in the valley.
| rossdavidh wrote:
| Another adverse selection problem: the education programs that
| should be using ISA's are the ones where there is a high risk
| that it will not increase your earning potential. For example,
| small liberal arts colleges. They are probably the least likely
| to do so, for that very reason.
| cjensen wrote:
| Economics has a lot to say about how bad an idea sharecropping
| is. (This is apart from the obvious racism/slavery aspect of
| sharecropping in the southern US).
|
| When you take a percent of income, you necessarily demotivate the
| worker. It comes down to this: Once the bare necessities are paid
| for should I work an extra hour, or should I go home and spend
| some more time with the family? If the income for the extra hour
| is decreased, it necessarily decreases the worker's interest in
| working the extra hour. Or maybe they still work two extra hours,
| but not three.
|
| To make this work out you either need to make the payback a
| simple loan (the traditional solution) or you need to put an
| achievable cap on payments. Either way the optimal societal goal
| is that if the worker works a bit harder they should earn 100% of
| the profit from the extra work.
|
| Historically this worked out as the disaster that was
| sharecropping. The tenant earned 50% and provided labor, and the
| landowner (who also provided capital equipment) earned 50%. The
| natural outcome was that laborers rationally did not work as hard
| as they could have, and the landowner failed to properly invest
| in equipment since extra income from productivity gains was
| halved.
|
| Percent of income may make investors salivate, but it's a self-
| defeating idea.
| sokoloff wrote:
| > optimal societal goal is that if the worker works a bit
| harder they should earn 100% of the profit from the extra work
|
| We already have income taxes (wherein the last hour you work is
| taxed at the full amount of your marginal [highest] tax rate)
| which serve to act against this goal in the same way, right?
| gruez wrote:
| Yeah, that's why economist say the least bad tax is the land
| value tax, not the income tax we have now.
| TulliusCicero wrote:
| I think it's potentially attractive to people for two reasons.
| One is that it's "safer" than a traditional loan: if the
| education doesn't work out and you don't get a good job, well,
| you only have to pay a percentage of your income, so your low
| wage job is still okay. Or maybe it's contingent on a certain
| type of job, so you don't have to pay anything.
|
| Second reason is that ostensibly, it aligns incentives. The
| education company only gets paid if you do, so they're highly
| incentivized to provide effective education that actually lands
| you a good job.
|
| But of course, there's also downsides, as the twitter OP
| states.
| missedthecue wrote:
| Sorry I don't see why this is true? If you're in an income
| sharing agreement, the only way for you to make more money is
| to work more, but this is how it works for people who don't
| have income sharing agreements too. The motivation isn't
| changed, one person just has more take home pay than the other
| person. (And if that person has a loan instead of an income
| sharing agreement, the disposable income between the two
| individuals are identical)
| wffurr wrote:
| >> Either way the optimal societal goal is that if the worker
| works a bit harder they should earn 100% of the profit from the
| extra work
|
| That doesn't seem to have really ever been true for a lot of
| people. It's very rare for workers to be paid in proportion to
| the amount of profit they produce for a company. Salaries are
| almost always determined by the labor market and the average
| wage for the role.
|
| Wage labor, which most of these ISAs seem designed to promote,
| seems to be fundamentally different from the kind of
| sharecropping relationship you describe.
|
| I'm not saying ISAs are good either, but that this doesn't seem
| to be true for many, if not most, workers today.
| MrPatan wrote:
| Now do taxes.
| imtringued wrote:
| Never tax work. Always tax finite resources.
| ridaj wrote:
| > adverse selection problems
|
| I gotta admit feeling some schadenfreude that people trying to
| revive indentured servitude end up being out-grifted by their own
| customers
| TulliusCicero wrote:
| Modest income sharing as an alternative to loans isn't any more
| "indentured servitude" than taxes are.
| dragonwriter wrote:
| ISA's weren't modest; they were heavier share than income-
| based student loan options.
| s1artibartfast wrote:
| But they are also free of runaway interest and lifelong
| debt.
|
| Payments are higher if you succeeded, but the downside risk
| is lower.
|
| This is the fundamental tradeoff.
| dragonwriter wrote:
| > 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.)
| s1artibartfast wrote:
| 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.
| gwright wrote:
| 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.
| klabb3 wrote:
| 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.
| hogehoge51 wrote:
| Australia's public universities (that is most of them) basically
| operate on a subsidised ISA built into the tax system called
| HECS. It's been going for almost 30 years and was started to
| double the rate of higher education participation, which was
| happened. There are huge problems with the Australian university
| system, but I'd say HECS is one of the lesser problems.
| jmyeet wrote:
| I wonder if you can apply the lessons learned here to, say,
| various creative fields, most notably producing music and writing
| books.
|
| When an artist gets a recording contract they will get an advance
| and the resources to produce recorded music (eg studio time, a
| producer). The label will end up owning the masters and get a
| percentage of sales. Whatever percentage the artists get first
| has to go towards the label's "costs" being all those services
| they originally provided (eg studio time) such that an album can
| make millions before the artist gets paid at all [1]..
|
| Only the very top artists can actually make a living of royalties
| and sales. Almost all artists have to support themselves by
| performing. It's also why top artists who support the current
| system ( _cough_ Metallica _cough_ ) never talk about performance
| income. TDhey try to frame music piracy as stealing from artists
| when the artist almost never gets any of that money.
|
| But why I bring this up is that it seems to bear a lot of
| similarities with these income sharing arrangements (eg the
| mismatched goals of the participants). 1[]:
| https://www.gerryhemingway.com/piracy2.html
| didip wrote:
| I am missing a lot of context.
|
| What is the common goal here?
|
| What was the selection process as to who can join?
|
| How long is the agreement?
| ransom1538 wrote:
| If you are out there wanting to learn - checkout a local
| community college. You can transfer quickly, easily and finish up
| the last two years at almost any university you want (UCs,
| Standford, Caltech, CSU, etc). A high proportion of students drop
| out of these harder universities in the first two years anyway -
| so they have room. I took a few courses there to save cash -
| college professors in my classes taught at Berkley anyway and
| would use the same material. "Enrollment Fee: $31 per unit" -
| this is INSANE to not take advantage of this. The courses
| DIRECTLY transfer. Lambda school (or whatever fake bootcamp crap)
| credits have no transfer ability.
|
| https://www.deanza.edu/
| Traster wrote:
| If you want to see ISAs in practice, a very close thing to look
| at is the UK student loan programme.
|
| Students can borrow 9k per year for tuition + 9-12k for living
| expenses (all univerisities are capped at 9k fees despite
| incredibly disparate outcomes and revenues). So a full time
| student could be borrowing between 27k (3 year degree, self-
| finance living) and 81k (6 year degree for a doctor, london cost
| of liiving). Or nothing at all if your parents can pay your way.
|
| It grows indexed to RPI+3% if you earn enough. This was a "loan"
| but you only pay back when you earn over a threshold. When the
| system was introduced the threshold was like 25k and it was
| indexed up by inflation. You pay 9% on everything over the
| threshold and the loan is forgiven in 30 years if you haven't
| finished repaying.
|
| Here was the problem: Before the first students under this scheme
| even graduated, the "loan" terms were changed to be more onerous
| on the students, and have continued to do so pretty much every
| year since. This year the minimum threshold was due to increase
| by 5% due to inflation this year. The government froze the
| threshold increasing the burden on graduates by hundreds of
| pounds. Essentially, it turns out that by taking this loan you
| signed a blank cheque for the government to tax you whatever it
| wanted in perpetuity. The latest proposals are that new student
| loans won't be forgiven for an extra _decade_.
|
| Why all this fucking about? Well firstly, it's young people who
| don't vote. Secondly, it's a relatively small demographic so you
| can mess them about with relatively little poltical implications.
| But most importantly, as all the data showed: The scheme doesn't
| work. It doesn't generate enough revenue to actually pay for the
| thing it's meant to pay for. Most people are just going to age
| out of paying off the loan.
| ipaddr wrote:
| You could see this being an awful business to work in. Your
| clients need to be unicorns in many ways. The type of person who
| would use this is not the type of client the business could
| succeed with.
| tempnow987 wrote:
| The adverse selection issues seemed glaring to me with ISA's -
| they would appeal tremendously for folks without great options.
| For folks with good academic career success looking to transition
| less so?
| legitster wrote:
| Also, people often forget there are plenty of good financing
| options available for low-income students. I got free tuition
| at a well regarded state university.
|
| So the main target for something like an ISA are students from
| middle-class families that want to pursue an expensive
| education at a "cool" school.
| namelessoracle wrote:
| the main target for ISA's seem to be people needing career
| changes in my experience. (at least for people doing it and
| having any kind of actual success from it)
|
| A great example would be the person who went to college and
| got degree and training to become a teacher, and then found
| out they would never be able to afford a home staying a
| teacher and decided to make a change. Another real life
| example would be the ex police officer who decided they
| couldn't do that job anymore. (I've met both of these people
| before)
|
| There are alot of careers that seem attractive to people who
| then realize they cant make a living doing that but have
| already used up their financial aid / scholarships / student
| loans getting themselves into that career.
|
| Dont get me started on ex lawyers who go into coding.
| nickff wrote:
| ISAs are also appealing to people pursuing degrees without an
| intent to become high earners, such as those looking to
| 'broaden their horizons' or 'earn their Mr./Mrs.'.
| gruez wrote:
| >'earn their Mr./Mrs.'.
|
| The saying really doesn't work for "Mr." because the male
| honorific doesn't change based on marital status. You get you
| "Mr." just by existing, you don't need to earn it.
| nickff wrote:
| I was just trying to avoid the appearance of misogyny;
| though I know some men who have changed their last names to
| their wife's, and I'm not sure how else to quickly allude
| to that.
| simow wrote:
| nickff wrote:
| I wish this were a short blog-post, as we need more of those, but
| it seems like a clear and incisive analysis of the issues facing
| ISAs.
| actually_a_dog wrote:
| It _is_ a short blog post. HN is just allergic to posting
| Threadreader links to things like this for some reason. I don
| 't understand what's so terrible about posting an easy to read
| version of the exact same content, rather than having to deal
| with Twitter's terrible UI for such content.
|
| https://threadreaderapp.com/thread/1505923007096700939.html
| nickff wrote:
| I would prefer it to be posted on a blog, but can't support
| ThreadReader. It seems like ThreadReader is violating
| copyright, unless they were licensed/authorized by the author
| or Twitter.
| actually_a_dog wrote:
| I guess you don't use archive sites then, either, right? Or
| search engines? Google creates an unlicensed derived work
| (their index) based on the sites they crawl. That seems
| like a silly justification. There's no way Twitter isn't
| aware of what ThreadReader is up to. If Twitter cared
| enough, all it would probably take is a cease and desist to
| stop ThreadReader for good.
| nickff wrote:
| I avoid using archive sites when the original is still
| live (and unedited). With respect to Google and other
| search engines, I usually visit the website providing the
| snippet, and have issues with their
| derivations/plagarism.
|
| You may think I'm being silly, but I'm acting in
| accordance with my values, as I'm sure you do in
| situations where I'd disagree with you.
| dqv wrote:
| I don't mean to be contrarian, but thread reader doesn't do
| that much to improve reading.
|
| It just removes some of the visual noise.
|
| The bigger issue is that we organize our writing into
| paragraphs.
|
| Threadreader doesn't know how to do that.
|
| So reading tweets on it is still a grating experience.
| gruez wrote:
| >First, the lack of skin in the game leads to very poor
| participant behavior.
|
| is there a reason why they can't require some amount of money
| down (eg. a few thousand dollars), or does that go against the
| ISA philosophy?
| cribbles wrote:
| Back in 2015, when this type of thing was still novel, I
| participated in an ISA program that required a $3,000 deposit.
| It was refundable if you failed a (demonstrably) good-faith
| effort to applying for jobs, or rolled into the payment once
| you landed one.
|
| This was a substantial amount of money for me at that time, but
| I probably wouldn't have applied for the program had it not
| been for the ISA. I was unwilling to take on new debt, and I
| didn't have enough money for an upfront payment. The deposit
| seemed like a reasonable expenditure to save toward precisely
| because the ISA showed that the program itself had skin-in-the-
| game.
| brimble wrote:
| "A few thousand dollars" is an absolute shitload of money to
| most people who aren't riding the computer programming bubble,
| and especially young people. It may as well be $50,000 for how
| hard it would be for them to come up with without taking out a
| loan, the same way I'm not any more likely to be able to jump
| 20 feet in the air than I am to be able to jump to the moon.
|
| I haven't had to count pennies at the gas pump rather than just
| filling it up all the way every time, or keep a running tally
| of what's going into my grocery cart, in many years, but I
| remember what it was like. $1,000 was a _fuckton_ of money at
| the time. An unexpected bill for a couple hundred dollars might
| ruin my whole month, and maybe the next one too.
| twblalock wrote:
| People who can put money down generally have access to other,
| more traditional loans (or don't need loans at all).
| eropple wrote:
| My understanding is that a lot of the folks you'd want to
| target for something like this don't have appreciable funds to
| put down in the first place.
| ratzkewatzke wrote:
| I think that the explanation about credit scores probably
| applies here; much as people with good credit scores had better
| options than ISAs, people with some cash to put up do as well.
| majormajor wrote:
| Plans like these are generally intended to help precisely those
| people who don't have a few thousand dollars lying around.
| (Heck, even many traditional students taking out loans would be
| hard pressed to put a few thousand dollars down instead of
| taking out a student loan. That's a lot of money to most people
| in the US.)
| 999900000999 wrote:
| Good riddance, when I first heard about this I was appalled.
|
| It's basically an extremely high interest loan, combined with
| bizarro access to banking records. Like for most of these ISAs if
| you couldn't make the payments, they want it access to your bank
| account to see that you really couldn't.
|
| You have this really strange setup where if your income increases
| even marginally, the ISA kicks in. Lambda school, which
| fortunately also collapsed was notorious for this.
|
| Student loans aren't necessarily bad, they just need harder.
| Caps. Like federal loans are very reasonable, private ones are
| not.
|
| Outside of attending medical school or law school, private loans
| are just a bad idea. On top of that, I think private loans are
| given out too willy nilly. Anyone can go to a bottom tier law
| school and take out $200,000 worth of loans.
|
| A good compromise here would be to make private loans fully
| forgivable, but federal loans are a fantastic deal and help me
| improve my life.
|
| 40k in student loan debt, which is about the max you can take out
| federally for undergrad, isn't bad.
|
| Anything above 100k can easily be insurmountable, the interest
| just accumulates way too fast for most people to pay it off.
|
| Then again, I never understood why lambda school needed to be so
| expensive. You're not running a real school, there's no reason
| you can't just tell people to take a free class off YouTube, and
| then have them pay $500 or so to have a project graded. And maybe
| more adventurous companies would be open to recognizing that
| project as proof you'd be a good hire.
| divbzero wrote:
| What about the alternative to ISAs proposed by OP?
|
| _Better than an ISA is an income-dependent loan with some
| minimum amount that must be paid back regardless of the program
| outcome._
|
| _With this setup:_
|
| _1. You concede and comply with the existing regulation_
|
| _2. You get access to the existing capital markets so
| financing costs come down_
|
| _3. You can use credit reports as a way to enforce the
| contract so collection rates go up_
|
| _4. Consumers already understand debt_
|
| _And, most importantly, the consumer gets a better deal than a
| classical loan._
|
| Similarly a bad idea relative to plain old federal loans?
| twblalock wrote:
| Federal student loans already have income-based repayment
| options, along with forbearances and public-service loan
| forgiveness options.
|
| I don't see how this proposal is a better deal.
| duped wrote:
| Federal student loans are a major driver behind increases in
| college tuition costs (1). Like you say, debt isn't necessarily
| bad - but there's a strong argument that subsidized debt and
| the lack of risk in granting loans just gives a bigger pool
| money for institutions to take from.
|
| Point being, federal loans are not a good deal. Each dollar you
| borrow effectively increases your tuition by 60 cents.
|
| (1)
| https://www.newyorkfed.org/medialibrary/media/research/staff...
| FastMonkey wrote:
| "Regulatory arb" makes it sound like they did some clever
| financial engineering to conjure money out of this air. It
| actually means they were able to skirt regulations meant to put
| a limit on the interest rates that borrowers pay.
| CPLX wrote:
| I learned from your comment that Lambda School fell apart a
| couple months ago. And I'm a pretty regular HN reader. Pretty
| interesting in the context of the founder being super active on
| social media. The denouement is always quieter I guess.
| mathattack wrote:
| I think they just rebranded.
| soneca wrote:
| > _"there 's no reason you can't just tell people to take a
| free class off YouTube, and then have them pay $500 or so to
| have a project graded"_
|
| I think there _is_ a reason you can't do that. People won't
| learn to program with that. I do not defend Lambda School
| anymore, but I think you are oversimplifying things to make
| your point. Which, for me, has the opposite effect of thinking
| less of your point when you oversimplify like that.
| 999900000999 wrote:
| As far as I'm concerned, that's more than enough to at least
| give someone an interview
|
| If they can complete a difficult project, and get though a
| whiteboard interview, why not hire them as a junior
| developer.
|
| Just because someone paid 30k for a boot camp doesn't mean
| they can code.
| runnerup wrote:
| I think the issue is that there is demand for a reputable
| (hirable) $3,000-30,000 program which can teach you to
| program in less time and/or more flexible schedule than
| traditional university.
|
| I think one good solution is Western Governor's University
| which falls in that price range and is extremely flexible
| on timeline.
|
| But honestly there are a lot of students who want high
| quality intensive instruction but cannot attend a top-10/20
| university. It's very very hard for most people to find
| high quality learning outside of those programs unless you
| get extremely lucky to be in the Bay Area or at a company
| which can provide an environment full of experts to learn
| from.
| ransom1538 wrote:
| "2. And when they take the deal, they often behave poorly 3.
| And when they behave poorly, you don't have great recourse"
|
| Yes. As it turns out when you invest in people with no skill,
| background or money - your investment goes to zero (excluding
| outliers). For companies like ycombinator the outliers are
| everything. But in this horrendous business model they can't
| capture the outliers' profits without being exploitative.
|
| If you honestly sat me down for 4 hours I couldn't think of a
| worse idea. Uber for cats? Rating people with a general global
| score? Selling loans to people out of rehab. I can't do it.
|
| First 15 minutes you learn in any loan business is: Income,
| Debt-to-income Ratio, Collateral. If those are out the window -
| you are either better than a trillion dollar loan system - or
| completely insane.
| devteambravo wrote:
| Not only did Lambda School crash and burn (Bloom Tech Institute
| rebrand = LOL). But those of us who managed to not give up and
| actually learn in other ways... are still on the hook for that
| ISA repayment. What a monumental scam.
| imtringued wrote:
| Maybe all we need for education is a room and a minimum wage
| employee making sure we are actually studying. After all,
| education happens in the students head, not the teachers.
|
| I'm just thinking out loud. Lambda school obviously failed to
| deliver on its promise but what if we can deliver the same
| service for very little money?
| tetsusaiga wrote:
| Since apparently it's not connected to credit score, what
| stops you from just not paying it?
|
| If small claims court is genuinely their only recourse, that
| sounds like something I might try my odds in, especially if I
| have a compelling case that I've been screwed.
| mathattack wrote:
| Did Lambda fold or just rebrand?
| giansegato wrote:
| I'm not following. Afaik Lambda didn't collapse. It recently
| rebranded due to a trademark conflict, but they're still alive
| and well from what I gather. Someone be so kind to explain?
| ilamont wrote:
| Lambda School leaked documents show poor performance over the
| last two years https://news.ycombinator.com/item?id=28989092
|
| Lambda School agrees to end deceptive educational financing
| practices https://news.ycombinator.com/item?id=26946972
| fossuser wrote:
| There's nothing to follow - most of the comments here are
| wrong.
|
| ISAs align incentives between teaching institutions and
| students, they're strictly better than the tuition model.
| They don't fix all issues because they still require
| selectivity on admissions (since the school needs to students
| to succeed in order to survive).
|
| ISAs are also not guaranteed to be good, but the ones
| originally used by Lambda School were good (Lambda School is
| somewhat of a third rail topic on HN, so it's worth just
| considering the terms).
|
| - Only require repayment if students gets a software job
| making >50k.
|
| - Payment was bounded to 10yr or 30k whatever happens first.
|
| Compare to college tuition which charges huge sums of money
| often paid for by non-defaultable loans and schools don't
| really care if students ever get employed by anyone.
|
| From his tweet thread conclusion:
|
| 1. Consumers are confused by ISAs
|
| 2. And when they take the deal, they often behave poorly
|
| 3. And when they behave poorly, you don't have great recourse
|
| 4. And there's a looming regulatory threat
|
| 5. And the financial markets aren't supportive
|
| My takeaway from this is that it's harder to build an
| incentive aligned business that really gets students to
| succeed than it is to take their money as tuition and not
| have to worry about that so much for business building. I
| guess I'd argue no shit - that's why ISAs are better, _they
| force_ the companies to be good at getting positive student
| outcomes because it 's an existential risk if they don't.
|
| That's kind of the entire point.
| michaelt wrote:
| _> ISAs align incentives between teaching institutions and
| students, they 're strictly better than the tuition model._
|
| Well, there's two ways you could operate an ISA:
|
| 1. You invest $20k in each student, carefully selecting
| only the applicants who are most likely to succeed, and
| giving them the most impactful, high-ROI courses you can,
| so that they almost all repay at least $20k
|
| 2. You invest $500 in each student using prerecorded video
| classes and assignments graded by unpaid 'mentors', take on
| far more students, and every time you luck into a student
| who repays $30k that's pure profit, baby.
| Dylan16807 wrote:
| Compare to the tuition equivalents:
|
| 1. Invest $20k in each student, etc.
|
| 2. Invest $500 in each student, and get paid $20k in pure
| profit right away, baby.
|
| So while the ISA model doesn't prevent scammers, I have
| no counterargument to "they're strictly better than the
| tuition model".
| culi wrote:
| If anyone's interested, I'm a bootcamp grad with a current ISA.
| The ISA I currently have: *pros*: - zero
| interest - whatever hasn't been paid after 5 years, I
| don't owe - no payments are due if you don't have a job
| making over $50k *cons*: - tuition was
| definitely overpriced and you end up having to pay 150% of the
| principal loan (assuming you have a high enough paying job for
| long enough within those 5 years) - a lot of bureaucracy
| you have to go through to prove you don't have >$50k salary
|
| It definitely sounded scary when I first heard of them. And at
| the point I was in the bootcamp we were literally dumpster
| diving and shoplifting to get us through till rent was due and
| our foodstamps were renewed. Recently got hired with $90k
| salary so it worked out, but I was very aware of the fact that
| I was in no position to negotiate and could easily be taken
| advantage of
|
| EDIT: To clarify, zero interest means zero interest. The 150%
| is the terms of the ISA agreement. You pay 10% of your
| paychecks to them until it's either been 5 years or you've
| payed 150% of the principle amount. Most people that get jobs
| in tech will have paid the 150% before the 5 year mark
| PragmaticPulp wrote:
| > - tuition was definitely overpriced
|
| IMO, this is the essence of why ISAs have become so scammy.
|
| ISA-based bootcamps are doing a fantastic job of competing
| against the _perceived_ cost of a college education. We 've
| all seen news headlines about how private college tuition is
| reaching $200K. What most people miss is that almost nobody
| pays full price for college. They have a high headline number
| for the wealthiest families, but virtually everyone else pays
| a fraction of this cost or some times nothing at all.
|
| People see the "$30K" price tag for Lambda School and other
| programs and assume it's a steal, yet most in-state tuitions
| are in the same range and provide substantially more
| education.
|
| I've also been completely stunned by how bad some of these
| programs are. I took the bait about Lambda School back when
| PG was promoting it all over Twitter, but it has been a
| terrible disappointment for the small handful of bright
| students I've known who went through it. Maybe it's changed,
| but at the time it felt like they were paying $30K of future
| earnings to have an inexperienced person point them to simple
| tutorials that they could have found by themselves online.
| They were basically paying for the certificate that said they
| completed the program, which is ironically the stereotype
| that people were using for 4-year colleges at the time.
| leetcrew wrote:
| > People see the "$30K" price tag for Lambda School and
| other programs and assume it's a steal, yet most in-state
| tuitions are in the same range and provide substantially
| more education.
|
| on the other hand, the time cost of a bachelor's in CS is
| much higher than that of an 8 month (?) bootcamp. four
| years is a long time to spend treading water wrt employable
| skills.
|
| I do feel that the degree is better long-term if it's at
| all possible. but that's not realistic for everyone. if at
| the end of the bootcamp you get a decent job that you
| wouldn't have otherwise, that seems like a good deal. if
| not, you're out a lot less money and time than flunking out
| of undergrad halfway through.
| Retric wrote:
| > four years is a long time to spend treading water wrt
| employable skills
|
| Internships during school can be a massive salary
| increase for many people. Even 25+$/hour is quite a large
| pay bump for a large chunk of the population, and many
| internships go well past that.
| brian_cloutier wrote:
| > What most people miss is that almost nobody pays full
| price for college. They have a high headline number for the
| wealthiest families, but virtually everyone else pays a
| fraction of this cost or some times nothing at all.
|
| You're using this statement to claim that college is not
| actually expensive but I'm pretty sure it supports the
| opposite claim. Anecdotally, I was accepted into a range of
| universities and ended up picking ~ the worst one because
| that was the university which gave me the best
| scholarships.
|
| If college is extremely expensive then it makes perfect
| sense that the only people paying full price are the people
| who have a lot of money: everybody else is filtered out by
| the high price.
| culi wrote:
| I totally agree. A lot of people talk about ISA being scams
| and I basically agree. But I don't think it's a scam in how
| they assume. If you do your research most ISA agreements
| are good about being more straightforward than most other
| types of loans. The scam is usually solely in the principle
| amount being charged.
|
| That being said, I think ISAs are actually partially
| successful in that they provided a way for someone broke
| like me to try something and not have to worry too much
| about the impact if it doesn't end up succeeding. I wish
| people in my position had more negotiating power to avoid
| being overcharged, but that's not a problem unique to ISAs
| actually_a_dog wrote:
| You can call it "zero interest" if you want, but, if you're
| paying back 150% of principal over 5 years, that's a 19% APY.
|
| https://www.calculator.net/loan-
| calculator.html?cloanamount=...
| culi wrote:
| To clarify, you can either pay the principal amount (e.g.
| 20k) or use the ISA which maxes out at 150% of the
| principle amount. By "zero interest" I just mean it's a
| fixed amount that won't ever change. This might seem like a
| frivolous distinction, but it means that you'll never have
| to worry about getting trapped paying just the interest so
| I think it makes a big difference
| nemothekid wrote:
| I don't understand, how do you end paying 150% of the
| principal loan if it's zero interest?
| cool_dude85 wrote:
| It's not interest, it's... hey, look, something behind you!
| culi wrote:
| see edit. The major difference is you don't have to worry
| about one of the most common debt traps: getting stuck
| paying only the interest. The amount you have to pay is
| totally fixed. 150% of the principle is the most you'd have
| to pay assuming you've had a high enough paying job for
| long enough within that 5 year span after graduating (most
| people do)
| shagie wrote:
| You can either spend $20k up front for the bootcamp, or pay
| $30k as part of an ISA over 5 years.
| willcipriano wrote:
| That just sounds like interest with extra steps.
| getcrunk wrote:
| actually its interest with the least amount of steps.
| Amount due isn't variable and no compounding.
| imtringued wrote:
| Non compounding interest? I think there is a better word
| for this.
| btdmaster wrote:
| https://en.wikipedia.org/wiki/Interest#Simple_interest
| KMag wrote:
| Presumably they mean that the total amount paid is not
| affected by the timing of payments. If they make a lot of
| money and pay it all off the first year, they pay the same
| total number of dollars as if they are unemployed for 4
| years and make enough to pay everything off the 5th year.
| It's something like 50% financing fees, but 0% interest,
| and forgiveness after 5 years.
| vxNsr wrote:
| Because it's an income share agreement, so whether you land
| a job making $100k or $51k you still owe 10% of your income
| to this company for 5 years. Regardless of the amount
| actually "borrowed". And I'm guessing there is a cap at
| 150% of the "loan". So if you land a high paying job rt off
| the bat you could end up paying a lot more than you
| borrowed.
| culi wrote:
| To be clear, this essentially means if I go through this
| program and end up working at McDonalds for 5 years, all I
| have to pay is through the labor of bureaucracy
| dwattttt wrote:
| Only if the program doesn't teach you the meaning of the
| term "opportunity cost"
| imtringued wrote:
| What if you go to a bootcamp, get saddled with an ISA and
| then work at mcdonalds and somehow get a better job that
| has nothing to do with the bootcamp? The bootcamp gets your
| money. Quantity over quality.
| Dylan16807 wrote:
| > get a better job that has nothing to do with the
| bootcamp
|
| I'll take it.
| s1artibartfast wrote:
| Contrast that with a private loan for tuition.
|
| You pay if you have no job, or any job. Debt has no
| expiration and is not disc arable in bankruptcy.
|
| It is clear that ISAs are worse if you will be
| successful. It is also clear that traditional loans are
| worse if you are wildly unsuccessful.
|
| The tradeoff is the tricky part.
| imtringued wrote:
| I don't think the problem is that it is a loan. The real
| problem is that you can manipulate people to sign up for the
| ISA and then give a low cost bad quality service. If you scale
| this up high enough, there are going to be people whose income
| is going to increase above the threshold just through chance
| alone. If you provide some low quality MOOC that costs you very
| little per person then you basically get to take a share of
| someone's income without providing any value.
|
| If the institution was accredited and there were inspections
| and punishments to keep quality above a certain threshold the
| model might work but right now it basically invites companies
| to operate like scammers.
| [deleted]
| gruez wrote:
| >It's basically an extremely high interest loan,
|
| Yeah, because there's adverse selection going on: "But people
| with high credit scores tend to have better, cheaper options
| than ISAs". All the academically successful student can get
| student loans/scholarships to traditional 4 year programs, so
| you're left with people who are genuinely bad mixed with
| diamonds in the rough. Because of this, you have to charge more
| to make up for the bad application pool. I'm not sure why this
| is worth complaining about. It's like complaining that lawyers
| who work on contingency overcharge compared to ones that work
| by hourly.
|
| >A good compromise here would be to make private loans fully
| forgivable
|
| So basically turn them into unsecured loans with sky high
| interest rates?
| dragonwriter wrote:
| > 40k in student loan debt, which is about the max you can take
| out federally for undergrad, isn't bad.
|
| The max for undergrad federal loans is $57,500.
| sarchertech wrote:
| That's the overall max, but the increasing yearly limits mean
| you can't reach that unless you take more than 4 years.
|
| If you finish in 4 years, the max is about $45k
| safdahfslh23s wrote:
| Personally, I'm sad that this model seems to not pan out. I'm a
| successful bootcamp story - I graduated from App Academy about 7
| years ago and have been working as software engineer since. My
| closest friends were all successful and all work at companies
| that you've heard of. The ISA model was key to me enrolling as I
| was skeptical of bootcamps. I was happy to pay if it worked
| about, but wanted to hedge my bet in case I enrolled in one of
| the many of the unscrupulous bootcamps that didn't actually teach
| anything.
|
| In my case, I found AppAcademy really helpful because I had a set
| of engaged peers, I had access to TAs to help answer questions,
| and the material was solid. However, from what I've gathered, a
| lot of the industry moved away from teaching this way in order to
| scale their classes and make more $$. Videos have replaced live
| instruction, class sizes have increased, and they let anyone TA
| classes. I wonder if most of the failures of ISAs are due to the
| poor product these companies are offering vs the issues with ISAs
| themselves.
| np_tedious wrote:
| I've worked with a few AppAcademy grads. Was pretty impressed
| by most. It certainly seems like one of the better ones.
| Congrats on your success
| [deleted]
| daenz wrote:
| Can someone add some of the missing context about the ISA
| experiment mentioned in the tweet thread?
| legitster wrote:
| Instead of taking out student loans, enter an agreement to
| share your income to fund the ISA and pay for future
| recipients.
| bpodgursky wrote:
| tbh the distinction feels kind of artificial given how many
| student loans are "paid off" entirely via income-driven
| repayment plans.
| s1artibartfast wrote:
| The main distinction is that traditional student debt isn't
| conditional or easy to discharge.
|
| There is a sizable portion of individuals who do not
| complete or utilize their degrees and are thus left with
| low income, large amounts of debt, and little prospect of
| paying it off.
|
| ISAs solve this problem.
| [deleted]
| phphphphp wrote:
| it's a colloquialism, "the experiment" refers to the collective
| belief that ISAs had potential risk to revolutionise funding
| for education etc.
| matsemann wrote:
| And ISA being..?
| eatonphil wrote:
| It's in the title of this post: income share agreement.
| phphphphp wrote:
| Income Sharing Agreement, I.e: what bloomtech (fka Lambda)
| use. No payment upfront, but the institution gets a cut of
| income above $x until the repayment amount is met.
| shagie wrote:
| An an article about them -
| https://www.nerdwallet.com/article/loans/student-
| loans/incom...
|
| An example contract -
| https://www.purdue.edu/backaboiler/disclosure/contract.html
| kevingadd wrote:
| It's also worth considering why a participant might "behave
| poorly". Even if you select for "good people", those in
| circumstances bad enough to need an ISA are probably more likely
| to hit harsh times in the future and simply be unable to repay
| the loan - they suffer from generational poverty, for example,
| which means if a close loved one becomes injured or badly ill
| they may have no choice but to abandon their education and work
| multiple low wage jobs to support their family. At that point the
| ISA investment is wasted because they're unlikely to finish that
| education anytime soon or be able to convert it into a high-wage
| job. People in poverty situations also often have worse health,
| which means you are dealing with higher odds of the participant
| being unable to pay it back because _they_ get sick, or die.
|
| I would not be shocked if it turns out that in practice ISAs are
| a money-losing proposition due to all the risks involved, even if
| they can be an effective way to make education accessible to
| people. Education being so ridiculously expensive in the US is
| still a relatively new thing.
| duxup wrote:
| I'm making some assumptions here that the ISA context is free
| coding camp like education for a cut of the participant's future
| income:
|
| What I always wondered was regarding these agreements:
|
| "People aren't used to making these kinds of deals. Do they
| understand them? Do they want them? Who is going to take them?"
|
| I assumed the attractiveness to the individuals was NOT taking
| out a loan and folks taking more of a 'long shot' and if it
| didn't work, things weren't going to work out for everyone.
|
| Also, I took a bootcamp that even with folks paying for the camp
| / taking personal risk, half those folks had no place there.
| After one month half the class should have been dis-invited "this
| isn't your thing". Finding good candidates is hard / IMO
| unpredictable.
| minimaxir wrote:
| This tweet thread was likely a subtweet of a controversial Sam
| Altman tweet the day before:
| https://twitter.com/sama/status/1505599701864701954
|
| > A version of college replacement I'm super interested in:
|
| > Find the smartest and most driven 18 year olds in the world,
| and give them 'tenure'--say a decade+ of salary, resources to
| work on whatever they want, and a smart peer group--in exchange
| for small % of future earnings.
| cglee wrote:
| For the past 6 years, I've operated a software engineering
| school[1] that uses ISAs and I have some thoughts about them.
| There are two main stated benefits to using ISAs (there are
| others, but those seem overblown): a) commission
| based pricing (aka, incentive alignment pricing) b)
| deferred payment
|
| Of the two, imo the second is by far the most important thing for
| students. To the first bullet, I don't personally find commission
| based pricing to be all that incentive aligning. For example,
| it's not uncommon for me to advise someone to take a much lower
| offer because it seemed like a better long-term opportunity. This
| is in line with Sean's observation that quality education
| outcomes is difficult to reduce to salary numbers alone.
|
| To the second bullet, the major problem of deferring all
| payments, however, is that you attract a lot of people looking
| for a shortcut. This is exactly the opposite attribute top
| employers are looking for. This is the "adverse selection
| problem" Sean mentioned.
|
| Ultimately, the solution here is in selecting for the right type
| of students into the ISA-based program. Sean mentions that credit
| scores track with the type of students they're looking for. Other
| ISA-based programs have stated that they've found a secret sauce
| other than credit scores for detecting the right students.
|
| We've found a different selection criteria:
|
| We ask students to do a lot of work before we engage them with an
| ISA. I'm calling this model the ISA-later model, just so we can
| contrast this with an ISA-first model, which is what Sean and
| everyone else is doing.
|
| An ISA-later program solves nearly all the problems associated
| with an ISA-first approach: - adverse selection
| is mitigated since you have a long track record of student
| behavior and performance - can still be egalitarian,
| without relying on credit scores or degrees or any socioeconomic
| markers - still possible to defer all payments, without the
| lock-in of an ISA-frst approach
|
| There are many other student-friendly benefits of an ISA-later
| model, but I'll stop here as this comment is getting long.
|
| [1] launchschool.com
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