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How Blockstack and Lambda School are fighting toxic student loans

Posted: 11 October 2019 2:46 pm
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Poorly-aligned incentives cause big problems. Novel revenue models can solve problems by realigning incentives.

Education in America is expensive. Student debt exceeds US$1.5 trillion, or an average of $34,000 for each full time student, 20% of whom attend institutions with tuition fees greater than $51,000.

But the problem is not in sheer numbers alone, but also how that debt is structured.

Doom and gloom

The first problem is that student debt repayments are required regardless of student success, and higher education institutions are too often incentivised to just sell courses rather than invest in the success of their students, even though success is needed for students to repay their debt.

It might seem odd to point out that student debt is repayable regardless of one's ability to repay it. After all, of course lenders would expect that money returned. But the unfortunate reality for many Americans is that the very education that was gained in acquiring the debt may not even get applied.

This is because of the second problem; the repayment structure of US student loans provides a six-month "grace period". This means that six months after the conclusion of study, the individual must begin to make repayments. As a result, graduates will often race to find work to cover the looming six-month deadline for debt repayments, even if that job isn't in their field and doesn't apply their higher education.

Combined, we have a dangerous concoction that sees many Americans entering significant levels of debt to study courses that were heavily marketed and sold to them by institutions who are incentivised not towards student success, but only course completion (and payment).

Now we have students concluding their study and walking into the big world to find that their high-held hopes and aspirations for a new career direction, and the chance to gain financial stability, was in fact just a qualification that entered them into an over-supplied industry, a role that's quickly being automated or a dying industry altogether.

Sprinkle the general health of the wider economy into this dynamic (something that most people, especially high schoolers and recent high school graduates are worlds away from understanding or planning for) and you have the student debt problem.

But it's not all doom and gloom. If there's one thing that keeps students driven, inspired and motivated to do better, it's exposure to the constant innovation and change that's been positively impacting them for as long as they’ve been alive.

Alternative student loan models

The chronic student loan problem has given rise to increasingly popular alternative payment models. Lambda School has one such example.

Put simply, Lamda School is an online (remote) education platform for higher learning with a specific (for now) focus on computer science and programming courses, with applications in building mobile apps and websites, and in digital design and in data science.

One innovative aspect of Lambda School is its approach to financing study, by offering students an alternative to a loan called an "Income Share Agreement" (ISA).

At a high level, the ISA Lamda offers means:

  • Lambda provides the education at no cost.
  • Students agree to make payments to Lambda School equivalent to 17% of their income per month over a series of 24 payments.
  • Payments are only made in months where the individual is earning over $50,000 p.a. equivalent.
  • The total amount payable by an individual is capped at $30,000.
  • The agreement expires after 5 years, even if no repayment were ever made.

Changing incentives

In practice, this means Lambda School makes money when students succeed, repayments are a percentage of that success. Under this agreement, Lambda earns more revenue from students who achieve greater success and generate higher income, up to the $30,000 total cap. For those who don't earn over $50,000, Lambda earns nothing and the student also has no obligation to share their income. And it all ends after five years.

It also means Lambda School is directly incentivised to help prepare students for growth industries, rather than dying industries. Unsurprisingly, blockchain is one of these.

Lambda School has now partnered with Blockstack PBC, a public benefit corporation that operates to support the usage and adoption of the Blockstack – a decentralised computing network that provides a full-stack for developers to build decentralised applications.

The partnership gives students the option of learning how to develop and build applications on the platform, and leverage new opportunities by applying blockchain technology. Blockchain is a foundational component of Blockstack, whose native cryptocurrency is called "Stacks".

At a high level, applications built on Blockstack flip the traditional model of data ownership on its head. They enable users to have complete control and authority over their personal data, unlike what we're used to where we place significant trust in providers such as social media tech giants.

Building applications in such an ecosystem means a great reduction in the risks associated with mass data breaches and the loss of user privacy. But perhaps the most interesting component is that users of these decentralised applications can now get the benefits of data portability.

Data portability allows one application to access and use data from another application, with the user owning and choosing to transport that data. For example, imagine you drive for a rideshare company and want to migrate to a new competitor that pays its drivers better. With data portability, you can bring across your hard-earned 5-star rating, directly to that new competitor. Apps built on Blockstack make this possible by giving control to data, both existing and newly created, to the user.

By extrapolating this, there are a number of exciting ways this can build real value for users and create compounding network effects.

And who's going to pay for it?

Data is valuable though, and currently the most direct commercial incentives are for developers to create systems for hoarding and monetising their users' data.

Just like the misaligned incentives between schools and students have contributed to a student loans crisis, misaligned incentives between application developers and end users have contributed to a privacy and data crisis. As such, actually solving the underlying problems means devising alternative revenue models rather than just trying to build a good product.

Lambda School doesn't just offer courses geared towards lucrative tech jobs, it offers them with an income share agreement rather than asking students to tap into loans. And Blockstack doesn't just let people build apps, it's also devised new ways for developers to monetise them to help ease people's dependency on monetising user data.

"One novel component about building applications in Blockstack is that we have a function called 'App Mining', where developers who build good apps are able to earn financial support each month based on the app quality, and its alignment to the Blockstack community values such as 'can't do evil'" said Patrick Stanly, Head of Growth at Blockstack.

This novel approach means developers can be rewarded sooner for their contributions to the open platform. Currently, $200,000 equivalent is awarded through app mining every 30 days and there are plans to see this exceed $1 million.

Speaking towards the partnership with Lambda School, Patrick referred to his past role working for Earnst, a US based lending company specialised in providing students with competitive rates on loans. The passion point he found came from his first hand experience in witnessing instances where highly capable students were unable to borrow money to study due to insufficient or bad credit history, and low bank balances.

"Blockstack saw great synergy in the partnership here to tap into an enormous market of highly talented and willing people who otherwise would not be able to finance their education into computer sciences. Lamba provides the pathway, and Blockstack provides what we believe is the future for building applications," he said.

At the time of interview, over 250 Lambda students were already submitting interest in undertaking courses that teach how to build applications on Blockstack.

Student loans are big business. But they're also too often seen as just part of the way the world works, when in fact they might be just another dying industry.



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