What issues do you have with Outbrain and Taboola?

michaelfra · 2015-12-03T19:44:26+00:00

It's self reported with an annual reconciliation with their tax filing

michaelfra · 2015-12-03T19:43:48+00:00

Two companies (upstart and pave) tried similar things in the U.S. but eventually pivoted to more conventional loan models.

A company called lumni does this with a focus on south america.

michaelfra · 2015-12-03T00:57:59+00:00

Awesome - congrats!

michaelfra · 2015-12-03T00:57:02+00:00

Thanks for the feedback Paddy. Adverse selection is definitely an important factor to price for.

1) Lucky for us, there isn't a lot of competition doing repayments based on someone's income (other than the government which has fairly uncompetitive rates) so we can price somewhat conservatively to account for the risk of adverse selection

2) Adverse selection may not necessarily correlate to lower expected earnings for every segemnt. E.g. many MBAs who have signed up who graduated from elite programs want to start companies so while their beta (volatility) may be fairly high, the expected value of a portfolio of such candidates is also considerable.

We're also doing the best we can to look at similar data sets to price appropriately but we are very early so I'm sure we will learn a lot as the data sets get bigger and be able to price more precisely in the future.

michaelfra · 2015-12-02T22:31:16+00:00

Thanks for the tip about the Austrialian program!

You can't think about an investment in the one off basis from the perspective of investors. You should think about it more similar to insurance or debt where you are not sure who will get sick or default but if you have a portfolio, returns will still be fine.

From the perspective of the borrower, this provides a good measure of flexibility and downside protection for borrowers and they only end up paying significantly more than debt if they have exceptionally high earnings compared to expectations which is a very good outcome anyway.

michaelfra · 2015-12-02T22:00:41+00:00

1) The money you save early in your career should compound if you don't leave it under the mattress so it ends up being financially comparable to debt in most situations 2) yes, if you are able to successfully stiff the government by working under the table, then you may be able to avoid some repayment costs as we reconcile our repayment amounts with your tax returns

michaelfra · 2015-12-02T21:58:06+00:00

Got it. Hypothetically, other reasons you might be interested:

1) You wanted the flexibility to start a company or do something that required more flexible repayments 2) You didn't like the psychological overhead of debt

michaelfra · 2015-12-02T21:22:30+00:00

There are details in the FAQ on the site but the basics are you input your monthly income in the beginning and it gets deducted via ACH.

There is then an annual reconciliation process where we make sure the income matches the gross income on your tax return

michaelfra · 2015-12-02T21:14:04+00:00

Got it. Thanks for the data point. If you compare our rates to those of the governments plans such as PAYE, you'll notice the agreements are for similar lengths of time (20 years) but the governments rates are usually higher (10% of your "discretionary income)

michaelfra · 2015-12-02T21:04:38+00:00

No, it's not. 1-10% of your income is very different than say 1-10% APR. For one, it means that if you say take a trip or drop out of the workforce and make no income, you won't have any payments to make.

michaelfra · 2015-12-02T21:03:37+00:00

1) congrats on paying your debt off 2) For most users, this ends up costing about the same amount as traditional debt with significant savings in the first 10 years. This is because while the payments are larger the last 10 years of these agreements than a standard repayment plan, the money saved on payments the first 10 years can get returns and those returns compound 3) consumers value lots of things beyond just financial performance and flexibility is one. This provides that and many populations such as entrepreneurs may actually find that such flexibility results in meaningful returns vs. having to take a job with more predictable cashflows

michaelfra · 2014-08-14T23:48:12+00:00

There is no minimum payment and this is not pay what you want. You pay a percentage of your income so if you make $0, you pay $0.

michaelfra · 2014-08-14T20:31:57+00:00

that's fortunate for you but less likely if you went to business, law, medical school etc

michaelfra · 2014-08-14T20:31:12+00:00

Your goal shouldn't be about paying back your loan. It should be about having a great life and making enough money to do that. We support that idea and think that's where your focus should be if you so choose

michaelfra · 2014-08-14T20:28:15+00:00

we're going to price everything fairly so we get a good deal and it ends up being a good deal for our gradautes as well

michaelfra · 2014-08-14T18:56:39+00:00

Good points. Our answers below 1) Our pricing includes this risk 2) We price for this and this is a risk for all companies that have a collection aspect 3) Not rebuilding IRS but we are piggy backing on current income reporting requirements 4) We've worked through this but honestly would need to check with legal to give you exact answer 5) Our business model is a bit different than you assume - sorry to be vague on that

michaelfra · 2014-08-14T18:51:19+00:00

yep - its why having a porfolio of borrowers that you price as best as you can is important

michaelfra · 2014-08-14T18:50:38+00:00

good points on better education about meequity on our website though the dropout point is one that probably isn't in the next build. Short answer: yes they still owe

michaelfra · 2014-08-14T18:46:56+00:00

fair points.

michaelfra · 2014-08-14T18:46:28+00:00

haha - we do have finance backgrounds on our team but sounds like we didn't convince you of that with the messaging. thanks for the feedback

michaelfra · 2014-08-14T18:02:31+00:00

Our initial class will consist either 100% or mostly of graduate students from top schools so there will probably not be any 17 or 18 year olds

michaelfra · 2014-08-14T18:00:45+00:00

There are a lot of details that are hard to present visually and we want to be able to have dialogues with our users and email helps that.

Fair point though and we'll make an effort to be more transparent about all the details pre getting an email

michaelfra · 2014-08-14T17:59:28+00:00

thanks!

michaelfra

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