Lambda School, an education startup that offers tuition-free data science and coding courses for a slice of future paychecks, raised $30m to expand its 6-month programs into high-demand industries like nursing and cybersecurity.
With student debt on the rise, ‘income sharing agreements’ (ISAs) that don’t require upfront loans are becoming a more popular way to finance education — but critics disagree about their benefits.
Treating students like investments instead of customers
Lambda students don’t pay a dime while they’re taking courses. Instead, they fork over 17% of their income for 2 years once they’ve landed jobs that pay at least $50k per year (up to a maximum of $30k).
Other programs offer similar arrangements: Traditional universities like Purdue and startup boot camps like App Academy and General Assembly offer similar ISA programs.
Proponents claim that since ISA schools make money only when their students succeed, ISA programs are a better business model for higher education that should be copied at all colleges and universities. But not everyone agrees…
Good luck, theater majors
Critics argue that since for-profit ISAs rely on high-earning alumni to make money, they aren’t a great solution for general education since they don’t work for most types of jobs.
Take Lambda’s business model: It works well for students pursuing tech jobs (83% of Lambda alums earn $70k within 6 months of graduation).
But the Lambda model doesn’t work in many other industries: In New York, for example, median salaries for therapists, nurses, and most teachers are under $50k — below Lambda’s threshold of profitability.
Higher education still has a lot to learn
ISAs like Lambda are joining other alternative education enterprises (such as MOOCs — massive open online courses — and specialized boot camps) in trying to build a cheaper model for higher education.
With investors pouring $9.5B into ed-tech startups, companies like Lambda will continue to grow in the short term.
But given the unstable market, it’s still unclear whether Lambda’s business model will succeed in the long term. But for the average college student, who graduates with $39k in debt and takes 10 years to pay it off, it sounds like a good deal in the meantime.