I gather GP's point was that the implicit motivation was that Lambda must do a good job because they will fail if you aren't employed, but this is akin to a sub-prime mortgage taker thinking they must be able to afford the mortgage if the bank says it will lend to them because they're at risk otherwise...

whereas in reality the banks just didn't care about quality because they'd package them up into securities and sell them on.

Yes but for the package to have any value the student still need to find a job.

LambdaSchool can get money on the long term, when the student get a job, and need to cover their costs now, so the packaging is not a weird thing to do. As long as the people buying them understands what they are, there is nothing nefarious going on.

There may be bad things happening at LambdaSchool but I wouldn't say that this part of the financing is one.

The Lambda School needs to do a good job with placing people in appropriate jobs or people will stop buying the portions of the ISAs from them. Would you feel differently about the financing if they simply borrowed money from lenders and used the ISAs as collateral?