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Comment by michaelt | Hacker News Reader

> 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.

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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".

You missed a third way which I think is actually most likely, given recent monetary stimulus policies:

3. You invest $500 in each student using prerecorded video classes and assignments graded by unpaid 'mentors', take on far more students, then structure groups of ISAs together into ISA-backed bonds, which you then sell to pension funds and other institutional investors for 15% off par value, or $25.5k each.

Not only do you get paid up front, but whether or not the ISAs eventually get paid back is no longer your problem. Also now instead of recruiting and vetting 200 teachers to teach your 2000 students, you recruit 10 teachers and a couple experienced sell-side traders and analysts.

To be fair, the original post was complaining that he couldn't find suckers to sell the loans to ^W^W^W "there are not mature capital markets for ISA programs to tap".

This is true and one of the initial criticisms of "there's not necessarily incentive alignment here" I thought of when I first encountered the idea. Hearing about #2 happen in reality is also sad. Though I think over longer periods more competition and reputation trashing has a chance to correct some of #2. Nevertheless I think "University" of Phoenix is still operating and hoovering up tax payer money despite being an internet punching bag for years, so...

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