As a cyber security engineer I think that this is something that would really help get more people into the industry. And there just isnt enough universities that have programs. My Alma Mater is going to be starting one soon but... Looking at the class list I cant help but feel like the 4 years are wasted and a more concentrated program would yield better results.
It seems like risk would only become a factor for Lambda School if you're taking 10% of pre-tax income from graduates for the 5 chronological years immediately after they graduate (regardless of employment status).
If you're instead taking 10% of pre-tax income from graduates for the next 5 years in which they're working (non-chronological), then the risk on your side actually seems fairly low, since most software jobs in the US pay >50k a year.
If you're taking 10% of pre-tax income from folks for the next 5 years in which they're employed AND making >50k, then the risk for Lambda School is basically zero. I believe this scenario is what is actually happening.
If the final scenario I laid out is what is happening, then this seems very close to traditional debt (take a loan out for living expenses + tuition, then repay a much larger amount down the line).
If only!
We only get paid if a student is making $50k/yr or more and the agreement is time-bound (10 yrs).
A student may teach those levels of salary without our involvement, but when our possible downside is $18k + the cost of training and our potential upside is somewhere between $0 and $50k any level of default or non-hiring destroys returns immediately.
I'm assuming that if someone loses a job, and later regains one, then payments pause while they're unemployed, but don't count for "repayment time", due to an article I read -- https://www.nytimes.com/2019/01/08/business/dealbook/educati....
How I think it works is that once someone graduates, they have 5 years of "repayment time debt". Once they get a job that pays >50k, the "repayment time debt" starts ticking down. If they lose their job, or start making <50k, then their "repayment time debt" stops ticking down, and will resume when they next get a job.
Even with a 10-year cap, this seems very close to traditional debt. It seems likely that software engineers will make more than 50k for 5 out of 10 years.
You’re assuming that everyone will quickly start making over $50k, which isn’t the case. Given that we outlay ~$30k in stipends and training and the cost of that capital is non trivial there’s no way a loan term would come close to this.
7.6% interest for 5 years on a $30k loan is $43,269.57.
However that is: - a government loan where default rates don't directly drive the interest rates - effectively subsidized by the govt
In your situation you must have much higher costs of capital from capital markets than the government's t-bill rates of 2.5% [2]. Especially given that your product is effectively equivalent to a unsecured loan in the eyes of wall street.
Then compound that some percentage of students don't make the $50k income requirement in the first year or two after the program and others who are even further delayed. We can equate this to a traditional default rate except the are no negative consequences to your student for delaying (in comparison to traditional default which hurts their credit), all the while your cost of that original capital keeps growing.
Given that your upper bound repayment is 50k and most students won't make more then $100k their first couple years out, then that is an effective interest rate of 11% if the 50k is paid over 5 years.
All in, you guys have a tricky problem. That is unless you can get as good as Sofi at picking which people to finance, i.e. Those that will immediately many >100k and with a quicky increasing salary. But Sofi has it easier bc they just cherrypick all the Stanford MBA grads who already have high paying jobs and first refinance their Debt. You on the other hand have to forecast accurately who will be successful.
Total capital cost isn't that much though. 1k students at $30k is $30M. You can easily raise VC to cover that (actually already raised $48m [3]) and don't need traditional capital markets / wall street to prove the idea. Only when you begin to have 20k+ students would you need traditional debt facilities. Thus, isn't your cost of capital just giving the VC ownership in the company instead of a repayment cost of capital (for now at least)?
[1] https://www.nerdwallet.com/blog/loans/student-loans/student-...
[2] https://www.treasury.gov/resource-center/data-chart-center/i...
I wonder what you make of the argument that most of what colleges/boot camps/etc are providing is largely just signaling, rather than education?
Obviously there is some education component, but I'm wondering how you think about the nature of the value you are providing.
I'm curious, one of your student stories mentions a student who was immediately hired into a senior engineering role upon graduating. While I've heard great things about Lambda School and its students, that gives me pause. When companies hire new grads directly into senior roles, do you think that they're set up to succeed in those roles? I'm genuinely curious.
For instance the place I work just hired as a senior engineer a former math professor with a math PhD that hasn't written a line of production code in their life. If this person decided to go through a 9 month bootcamp before applying the outcome would have been the same.
Note this is not a comment about the quality of Lambda School. I've heard good things about it. But it's almost tautological that someone shouldn't be eligible for a "senior software engineer" title after they've graduated Lambda School, just as they shouldn't be eligible for it after they've graduated university. Such training is necessary but insufficient for being able to meet the level of responsibility you're given at that title.
Like I said, this isn't a comment on the Lambda School. It's a comment on the idea that this occurrence isn't absurd, regardless of whether or not it's rare.
Senior Engineer is a relative title. It means more senior than the other engineers at that firm not other engineers at different firms. A senior engineer on the google android team is way more knowledgeable than the senior architect at a local coding shop where the average dev makes 40k/year and has a year of experience.
The "Senior" hires may have significant outside industry experience, even if they only have 9 months of programming experience.
The title is a paygrade in this case, not a level of experience.
You can imagine how well this went over.
As someone a bit later in their career (4 years in), I'm a bit jealous of this opportunity. I'd be very curious in some kind of midlevel->senior program like this. Something like Bradfield but more widely available geographically. The content is more difficult at that level, but the salaries are substantially higher as well.
What about international students ? Can a Canadian apply to Lambda School ?
But hopefully soon.
The biggest problem in education right now, IMO, is that incentives are not aligned. What happens with college is that students put themselves 100K+ in debt, but the college doesn't really care if the people get jobs in not.
It is an extremely upstanding and honest business model, to make is so the educational institution (you, in this case), only get paid if the students get paid.
I really hope that more educational institutions follow your example of taking on the risk of the students.
- current Lambda Student
We train students on that stuff but they’d really struggle in the long run if that were too much of a focus.
Our first cohort, for example, hit 100% employment.
In major tech cities (NYC, Seattle, Silicon Valley) the starting salaries are over $100,000, plus $20-40,000 in Restricted Stock Units, and $20-40,000 in yearly bonus.
Importantly, RSUs from public companies are directly convertible to cash once they vest (usually 12 months). Startup options lottery tickets are a different story.
See http://comp.fyi
I don't think people not looking for a job is a problem you need to heavily consider. Especially if there's a selection process for admission -- which the founder says there is.
Edit: I my case, I'd find an extra 2k/month attractive, and there are always new things to learn about software.
We're single digit months away.
Today, atleast in US it requires taking significant debt/risk to become a developer which keeps away the people who are risk averse.
I seriously suggest stopping this program otherwis there will be massive supply of developers resulting in huge wage drop.
We launched our online CS academy with no upfront tuition almost two years ago.
Now with thousands of students enrolled and hundreds already employed and paying back we wanted to take the next step and open up access to folks who couldn’t afford to pay to survive while attending.
Of course, that introduces significant risk on our part, as students still only pay us back if they get a job paying $50k/yr or more, but we’ve spent the last two years perfecting our admissions and course to select hard-working folks who are likely to have what it takes to get hired and do everything we can to get them there.
For context, we have dozens of full-time interview sourcers and multiple companies per day coming in to interview our students - incentive alignment is powerful. Now that that’s working we can afford to take more risk.
We’re hoping we reach a point where anyone anywhere can move quickly to a high paying job, and only pay back if it works!