In December, online coding bootcamp Lambda School quietly partnered with Edly, a digital marketplace that helps schools sell income-sharing agreements (ISAs) to accredited investors. The arrangement allows Lambda to receive money from the ISAs upfront, rather than waiting for students to find jobs. But it also flies in the face of the values Lambda typically espouses: namely, that ISAs align its incentives with the goals and aspirations of the students.
— edly ISA Marketplace (@edlyISA) December 11, 2019
Shortly after the arrangement was called out on Twitter, following a report by The Verge about some students’ disappointment with the curriculum, Edly began taking down pages that referenced the Lambda partnership. Edly did not immediately respond to a request for comment about why these pages were taken down, and Lambda declined to comment on the nature of the partnership at all.
Thinking of these ISA contracts, could you imagine if, behind the scenes, they were essentially securitized as well? Bootcamps serving as subprime mortgage originators. Packing students into tranches and selling them off. (That probably sound like some FIN-EDU-TECH dream ☠️).
— DHH (@dhh) February 11, 2020
Lambda’s ISAs promise an alternative to traditional student loans by allowing students to defer tuition until they’ve landed a job that pays $50,000 a year or more. When that happens, they hand over 17 percent of their income until the $30,000 tuition is paid off. If students don’t find work within five years of completing the program, the ISA is automatically dissolved.
It’s a business model that allows Lambda to brag about investing in students — which, in many ways, it still does. The school provides living stipends and even housing to some students who need it. But reselling ISAs muddies the narrative a bit since Lambda can make money long before students find jobs.
“The ISA is the business model, not education,” says Kim Crayton, a business strategist and founder of #CauseAScene, an organization that’s seeking to disrupt the status quo in tech. “You cannot tell me that education is your business model when you have not registered as an institution.” For months, Crayton has been speaking about the problems with coding bootcamps on her podcast, where she’s argued that they target vulnerable communities. “You’re put in these spaces and putting in 110 percent and it’s still not working and you’re told to ‘trust the process,’” she says.
The selling point for investors who sign on with Edly is that they can buy shares from schools’ ISA pools with return percentages proportional to what they put in. “This gives us the contractual right to the cash flows generated by the students upon employment,” Edly’s website reads. To help investors get paid, Edly uses a servicer to collect money from students. Today, it’s unclear whether any shares of Lambda’s ISA pool have actually sold.
Lambda CEO Austen Allred has frequently pointed out that ISAs are not loans. The amount students pay back through an ISA changes along with their income; if they lose their job or make less than $50,000, their payments go down to zero. But ISAs are still a form of debt, and debt can be sold off and enforced by a more aggressive collector.
A webinar restricted to accredited investors on December 11th, 2020, promised to discuss “the latest Edly offering” in a session called “How to Invest in the Lambda School ISA Pool.” Allred was joined by Edly CEO Chris Ricciardi who has been called the “grandfather of collateralized debt obligations.”
A similar arrangement was previously reported by Wired, which found that, in 2019, roughly half of Lambda’s ISAs were sold off to investors. It’s not an ideal situation for the school — the rights to the ISAs are deeply discounted because of the risk that students won’t pay them back — but it’s allowed Lambda to keep operating.
On Reddit, Allred had previously said that while Lambda financed ISAs “in various ways,” it didn’t make money until students were hired and began paying a portion of their income. Allred’s comments remain, though the original topic post has been removed by Lambda moderators.