The original document is called an income share agreement (ISA). It's not a debt instrument or a loan, but is actually a legally binding "equity" stake in a student's future income under specific circumstances for a specific amount of time. Lambda, for example, takes a percentage of income for two years, only if they're working in a software-related field, and only if they're making above $50k/yr. We also cap the amount paid over the two years at $30k, regardless of how much a student is making. So, yes, if they don't get a good job, we never get paid. That only seems fair.

As for how it works practically:

In conjunction with the ISA, each student signs a 4506-T or 4506T-EZ (or any successor form) with the IRS, which effectively copies us on their taxes.

Students self-report their salary, and we adjust payments according to their reports, until year-end reconciliation, which happens around tax time. We get their taxes and double check that their self-reporting has been accurate, and adjust accordingly.

Should a student default, we have the same remedies that any other private lender would - we reserve the right to report to credit bureaus, we can sell the agreements to collections, etc.

-How do you track students once program completes?

We are working with http://vemo.com/, they are specialized in Income Share Agreements (ISA) and the goto in the industry if you want to do ISA. Purdue University is also using them. Vemo request access to students tax return so that we can see their income.

- How does the legal binding works?

Students are supposed to let us know about their employment situation so that we can adjust the payment. The deal is that they pay 17% of their income if they make $50k/year or more. At the end of the year tax time, we do a reconciliation where we compare the amount received against the student income, where the student or the school might owe money to the other part.

What is great about this model is that: -Student only contributes back to the school if they are employed. -Student contribution is proportional to their "financial success". -Holberton can only thrive if its graduates thrive, no bs.