The company has partnered with Edly to sell ISAs to investors
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.
Pleased to announce our latest offering – a Lambda School ISA Pool. We @edlyISA are excited to work with the amazing team @LambdaSchool , one of the most impactful ISA programs in the country.
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
Lambdas ISAs promise an alternative to traditional student loans by allowing students to defer tuition until theyve 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 dont find work within five years of completing the program, the ISA is automatically dissolved.
Its 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 thats 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 shes argued that they target vulnerable communities. Youre put in these spaces and putting in 110 percent and its still not working and youre told to trust the process, she says.
The ISA is the business model, not education
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, Edlys website reads. To help investors get paid, Edly uses a servicer to collect money from students. Today, its unclear whether any shares of Lambdas 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 Lambdas ISAs were sold off to investors. Its not an ideal situation for the school the rights to the ISAs are deeply discounted because of the risk that students wont pay them back but its allowed Lambda to keep operating.
On Reddit, Allred had previously said that while Lambda financed ISAs in various ways, it didnt make money until students were hired and began paying a portion of their income. Allreds comments remain, though the original topic post has been removed by Lambda moderators.