Lambda School’s For-Profit Plan to Solve Student Debt

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Early this summer, tech entrepreneur Austen Allred was on Reddit, as he often is, when he noticed something suspicious. The coding forums he frequents, where people usually talk about JavaScript bugs and command line functions, were being suffocated by rants and raves on a particular topic: a coding bootcamp called Lambda School, which Allred happens to run.

To Allred, the posts looked suspiciously robotic. Perhaps a competitor was posting spam to get any mention of Lambda banned from the forums. Maybe it was a bootcamp critic on a tear. Allred had heard that people were spreading rumors he was behind the accounts, trying to gin up more exposure, good or bad, for his startup. “People want us to fail,” he says, casting a glance from under the brim of his signature grey and red trucker hat, emblazoned with the eponymous Greek letter. “People want to think that Lambda is a scam, because they want to believe the results we’re producing are impossible.”

Lambda School is an online coding program that’s free until you finish and get a job. The central conceit is an income-share agreement (ISA): students pay nothing while attending the school and then pay a portion of their earnings once they’re employed. The concept, first proposed by economist Milton Friedman in the 1950s as a “human capital contract,” has been heralded by some as a market-based solution to student debt. Everyone is on the same page about the goal: finding a good-paying job.

That idea has proven especially alluring to a certain subset of Silicon Valley for whom the phrase “aligning incentives” sends hearts aflutter. Plus, advocates say the model allows for wider access in a space dominated by private student loans. Lambda School has no campus; the video lectures are available wherever students have Wi-Fi and are thus infinitely scalable—so long as there are coding jobs to fill (for the moment, there are plenty). In January, Lambda received $30 million from investors including Google Ventures, Y Combinator, and Ashton Kutcher.

As Allred sees it, anyone can be a coder, provided they’re willing to put in the work. The most important quality, he says, is “grit.” That upsets some people, he suspects. “We eliminate the excuses people rely on to say why they’re not successful, why they’re not rich, or why they went down a different path.”

That message has wide appeal. Allred’s social media following has become so large that even he at times finds it bewildering. On Twitter, @Austen offers a viral mixture of pathos—retweeted tales of students delivered from the brink of poverty to plum coding jobs—and sober charts about student debt and the pace of innovation. He replies to anonymous critiques of the school, bot-written or not, point by point. (So much so that Y Combinator cofounder Paul Graham, a frequent booster on social media, tweeted at him to maybe stand down once in a while.)

By now, the tagline “free until you get a job” has burrowed deep into the subconscious not only of Silicon Valley investors but basically anyone who has Googled “how to learn programming” in the past three years from their living room in Tallahassee or a coffee shop in Kalamazoo. But it’s also, largely, an untested model.

Critics point out that ISAs are designed not just to pay back tuition but to maximize financial returns—to the school and its venture capital backers, as well as other investors who might buy an interest in individual ISAs as a new type of asset. Lambda says enrollment, now 2,700 students, is growing at 10 percent a month; it foresees soon bringing the ISA model to other subjects, like nursing. But as the pool of “human capital” grows, what else changes when students become investments?

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