Is The Lambda School Model The Future of Higher Education?

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Student loan debt is a key financial issue facing American millennials. The level of student debt accrued by students has skyrocketed in recent years, reaching over $1.5 trillion dollars in 2018. At the same time, the benefits of obtaining a bachelor’s degree and the ensuing debt that goes along with it has been diminishing. Underemployment is growing among college graduates. The current model of higher education, it would appear, is ripe for disruption.

Enter Lambda School, the for-profit coding boot camp founded by Austen Allred. On Tuesday, Allred announced that Lambda had raised $30 million in funding to expand its operations. Among the most distinctive features of Lambda School is its fee structure for students. Instead of the traditional model, Lambda students do not pay tuition fees. Instead, graduates pay part of their graduate salary for two years after graduating, up to a maximum of $30,000. This only takes effect if the student obtains a job paying at least $50,000/year. If a Lambda graduate does not find a job that earns them at least $50,000 a year five years after graduating, they do not pay any fees. These arrangements, sometimes referred to as Income Share Agreements (ISAs) have been taken up elsewhere by institutions such as Perdue University.

This model is somewhat similar to the system used in Australia, which is known as the HECS-HELP (Higher Education Contribution Scheme – Higher Education Loan Plan). Under this system, students do not pay fees up front. Instead, once reaching a certain income threshold, they pay back a percentage of their earnings to the government. Comparisons have also been made to the system used in Britian, where students are eligible for loans up to 9,000 pounds/year. Under this system, graduates also begin to pay back the loan once their annual earnings reach a certain threshold.

The key difference between these two schemes, of course, is that in the Australian and British schemes, the money is being lent by the government, so ultimately the loan is taxpayer-funded. ISAs, on the other hand, are not taxpayer funded, being between the student and the college they go to. Another difference between the systems is the rate of pay. At 17% per annum, the payment level for a Lambda graduate is significantly higher than that of the loan scheme in Australia or Britain. For some graduates, particularly on the lower end of the $50,000 minimum repayment threshold, it is a significant amount of pay deducted. However, this is only for two years, as opposed to being ongoing until the full loan is paid, which in many cases can be for well over a decade.

Some users on Twitter have dismissed Lambda’s model as ‘rediscovering taxes and public education’:

It is easy to write off what Lambda is doing in this way, but the comparison does not hold for a number of reasons, as many Twitter users replying to the above Tweet pointed out. For one, as was written earlier in this piece, tuition is not covered by the taxpayer. Because repayment is also contingent on employment, this reduces the risk for the student and increases it greatly for the college, in this instance Lambda. Therefore, Lambda is incentivised to maximise employment outcomes and value for its students. This is in contrast to the majority of colleges and universities which receive money regardless of completion or employment outcomes for students. The length of courses at Lambda is a further difference between the typical college bachelor degree and what is offered at the school. Full-time courses run for 30 weeks, while part-time courses run for a year. It is also entirely based online, not having a physical campus.

The school plans on training around 3,000 students this year. Though it has only been in operation since 2016, Lambda has already grown exponentially. The recent press coverage Lambda and Allred have received will undoubtedly help its rapid growth continue. While ISAs may not work for every college or for every study program, the success of Lambda to date shows that Allred is clearly onto something. It should be seen as a welcome step in rethinking how tertiary study programs are delivered, funded and paid for in America.

 

 


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Scott Davies is a freelance writer and tutor. He is currently studying a Master of Education. He is interested in education, economics, geopolitics and history. He's on Twitter and has a Medium page.

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10 thoughts on “Is The Lambda School Model The Future of Higher Education?

  1. Because repayment is also contingent on employment, this reduces the risk for the student and increases it greatly for the college, in this instance Lambda.

    This is key. Direct public financing of tuition through taxes reduces the incentive of the school to ensure the student is well educated and trained and capable of being a strong contributor to society.

    The downside is, of course, that putting that much risk on the school means they are going to be very picky about who they accept.

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    • One social worker making $30k is more of a “contributor” to society than a 1,000 coders, in my view. So, if Silicon Valley wants to open schools on their own, that’s fine, but the idea public education should only be about “return on investment” and that the only goal of education should be a job is the worst thing about modern America.

      Public tertiary education should be gloriously funded and free at point of use, so that a poor kid from Alabama can just as easily choose to get a degree in Philosophy without being told that if he doesn’t get a Computer Science degree that he’s doomed to be in debt forever.

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      • Not every contributor to society needs to make bank and pay lots of taxes.

        But if you have a school for Social Workers where the graduates are less than useless because they got a crap education, then that is a problem. Especially if the school still gets paid by the state because it’s politically connected.

        I’m all for any system that forces the school to have more skin in the game than just a bit of reputation.

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        • In a model where the requisite education is paid in a model similar to individual income tax, yes they do need to make bank individually, or the programs that train those people will shortly be shut down by the universities, in favour of programs to train day traders and other non-contributing arbitrageurs.

          The benefits of social workers accrue to society through other means though – their clients earn more income, need fewer medical, law-enforcement, and other interventions. Formalizing this into an accounting framework where the university that trained the social worker sees a cut of the reduction in social costs of their clients’ problems, seems… challenging.

          Now, if we’re proposing a system where social workers get paid better – I’m all for that…

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    • Direct public financing of tuition through taxes reduces the incentive of the school to ensure the student is well educated and trained and capable of being a strong contributor to society

      Where “contributing to” is defined as “extracting from”.

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  2. The main thing that I’d wonder is whether the first group of students is unrepresentative of the students that will be Lambdaites in 2025. Are the Cream of the Crop (the *OVERLOOKED* cream of the crop) in this first batch of kids and then when the mushy middle that has heretofore been getting degrees that involve more, shall we say, unmeasurables starts transferring over to Lambda, will we see a huge regression to the mean?

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