📶 no more ISAs

The fallout of Lambda School and why income share agreements did not take off

April 23, 2024 • Estimated Reading Time: 6 minutes

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Remember a few years back when everybody was saying ISAs were the future of education? That’s probably still pretty far away.

Last week, the CFPB laid down the hammer on Lamda School (rebranded to Bloomtech) for shady lending activities.

Given that Lamda was the face of the ISA movement, it’s a big blow.

We break it all down in this week’s piece.

TL;DR:

NEWS
The cost of an education 📚

Why it matters: 

BloomTech (Lambda School) was the face of income share agreements - a new way to flip the incentive structure of higher education.

Lamda School offered coding bootcamps to students “free of charge” to help place them in software engineering jobs. Then the company took a percentage of earnings (17% to be exact) over the next five years as a way to recoup the investment.

Some of you may be reading that and saying to yourself. “that sounds a lot like a form of debt”.

You’re right.

The CFPB decided these ISAs were definitely loans since Bloom was earning an average finance charge of $4,000 on each one, students could default and get sent to collections if they failed to make payments, and Bloom was turning around and selling those student debts to investors for $7,000 to $10,000 a pop.

What happens next: 

The CFPB has ordered Bloom to cancel all loans for students who haven’t made a payment in the last 12 months, let current students immediately quit the program with no debt, and return a small amount of money to graduates who paid Bloom a premium and yet didn’t manage to land a job making $70,000 or more. The CEO of the company is also banned from any student-lending activities for the next decade.

For those who have followed this story, this shouldn’t come as a surprise.

The company had been sued by students in the past, and the original appeal of this educational model had largely worn off in tech circles. At the same time, many graduates were learning the harsh reality: employers still place a higher value on status (computer science degree at elite school, prior leadership roles at venture-backed startups), especially for higher-paying engineering roles.

We still think there could be a future where income share agreements are used in different industries, but this news makes it pretty clear that it won’t be in education.

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