Center stage in policy discussed at the DNC national debates, federal student loans account for over $1.5 trillion in debt amongst roughly one-sixth of the U.S population over the age of 18. Amidst a growing awareness of blockchain technology amongst millenials and college-aged citizens, BBHQ examined blockchain-based alternatives to student loans such as income share agreements.
Tokenized Income Share Agreements (“ISA”)
Income share agreements (“ISA”) allow students to finance their education in exchange for giving up a percentage of their future earnings. For example, a student can opt in to a loan that requires paying back 5% of their income over 15 years to an ISA company or investor.
Tokenized ISA’s can be tenured and legally enforceable using ERC-20 Ethereum tokens or other blockchain-based digital assets. Due to the nature of smart contracts, tokenized ISA’s are meant to lower default rates by autonomously enforcing contract policies.
In a recent statement, the OpenLaw team said, “We’re bringing these early efforts together into one comprehensive offering, enabling anyone using OpenLaw Finance to create and issue security tokens, fixed income products (like bonds and other debt instruments), create smart derivatives…We provide generic tools to expand the types of deals involving digital assets.”
OpenLaw stresses compliance with existing regulation and operates on more than just blockchain technology, saying, “All of the transactions on OpenLaw Finance are seamlessly tied to binding legal agreements and can be output as structured data (JSON objects).”
Josh Ma has an excellent article on using using OpenLaw and Ethereum for Income Share Agreements, which can be found here. Within the Medium post, he also explains how to use incomeshare.me, an Ethereum DApp that uses OpenLaw.
Polybird’s Recent Partnership with Open Esquire
Polybird is a regulated securities token exchange based in New York, US. In an exclusive comment, Harish Gupta, CEO of Polybird, told BBHQ:
“While Polybird is an exchange like NASDAQ where such ISAs are bought or traded, the origination and underwriting of such ISAs are done with Open Esquire platform. Open Esquire together with Polybird Exchange constitutes one portal, despite it being two separate platforms.“
Co-founder Ross Campbell describes Open Esquire as “…a fintech consulting firm that specializes in ‘organizational programming’ and advising companies on ways to use Ethereum-based blockchain technology to optimize their assets and workflow.” The two companies are using OpenLaw to develop tokenized ISAs while Polybird’s software marketplace, Polybird Exchange, distributes the ISAs.
The Polybird Exchange connects students and lenders to income share agreements within a few clicks. Through the Polybird Exchange, if an ISA holder requires immediate income, the ISA can be liquidated to a third party buyer, who assumes the risk in return for higher potential earnings over time if the student earns income in the future.
The portal is expected to be secured using, “Ethereum-based tokenization and tamperproof records…”
The two companies seem to be banking on the idea that millenials and Gen. X students are more aware of blockchain-based technologies than older segments of the global population. Future students may pursue alternative methods of financing rising college costs, especially as the blockchain space becomes more regulated and aboveground.