This is a new asset class, investors are going to dig deep and understand it. They will certainly have access to more data and analysis than the average student.
However, if the government were to start to guarantee the loans and the volume hit an impossible level, and people got used to minimal defaults for 20 years then that would lay the groundwork for the type of disaster you suggest.
(I am not affiliated with labda or any of its investors)
Instead of running the entire school on venture capital, which wouldn't make sense (VCs need a huge return per dollar), we use an advance from investors based on the future value of an ISA to offset the cost.
If we work with investors to say that an ISA will be worth $x, we can borrow $x minus interest the same way you would be able to for any other asset.
Of course, that amount needs to be repaid. So it's still completely risk-aligned.
This makes sense for liquidity, but ultimately the ISAs are what has to provide the funding (or it's not a viable business).
As the investment terms improve, the portion of the ISA payout spent on training has to go down.
You are correct that the ISAs need to pay out to be an interesting investment, but if you are pricing the ISA to what the investment market will pay instead of what the training costs, it's not exactly a better deal for the students.
The financing is all cashflow management behind the scenes that doesn’t really matter.
A Stanford grad doesn’t know what the marginal cost of their enrollment is.
Otherwise, how does a student that doesn't land a job and whose ISA will never repay fit into this model?
Also every student is quite expensive. We gain nothing and lose a lot by enrolling students who don’t get hired.
The article is wrong in many different ways, this is only one of them.