A green snake

Lambda School: Innovation or Scam?

In Programming, Technology by Pete

One of the newer code schools on the block is Lambda School. Their financing model recently came to my attention. It looks too good to be true. For many people it might be.

Lambda School offers two products:

  1. A code school that charges $20,000 for a 30 week program
  2. Financing for said school

The financing is important because they’re not accredited; traditional student loans aren’t available. They describe their financing mechanism on their front page:

Pay Nothing Until You Make It
No loans, no debt, and no up-front tuition. You’ll pay a percentage of income after you’re hired, but only if you’re making at least $50k/year.

Their Austen Allred, their CEO, provided some extra details on Twitter:

  • $50k Salary repayment trigger
  • 17% repayment rate
  • 2 year repayment length
  • Repayment capped at $30k.
  • 5 year bail-out (if you don’t get a tech job)

There’s a strong implication of a “risk free” deal on their site, but they’re careful not to say so. Even their tagline sounds great: “A Revolutionary New School That Invests in You”.

The problem, of course, is that there’s a huge amount of risk for the student. What, you expect a venture-backed for-profit educational institution to shoulder the risks? lol

Risks to Lambda School Students

The two components that make this program risky are the extremely low repayment trigger and the absurdly high repayment rate. They combine to look a lot more like a payday loan than a student loan.

Once your salary hits $50,000, you’re on the hook for 17% of your salary. That’s below the median household income in the U.S., and the 17% is calculated pre-tax but paid post-tax.

If you get a job in SF or NYC, your take-home pay on $50k a year is going to be around $3,200 a month. Your monthly payment to Lambda school is going to eat over $700 of that.

Your new take-home is $2,500 a month.

That has to pay for rent, food, internet, entertainment, transportation, health insurance, and so on. I hope you don’t have any existing student loan debt.

To this criticism, Allred offered two excuses:

First: What if someone moves to a rural city where $50k is normal and more than enough to pay back $700 a month? They can’t just lose money on rural graduates!

Lambda has chosen to screw people who make low salaries in big cities to avoid the possibility that their repayment might take too long.

Remember, they’re going to be lurking around for five years1 waiting for their repayment. So a higher payback trigger just delays their profits in more rural areas.

The same applies to the usurious repayment rate. They could have a lower rate (or a fixed payment plan) and make all their money back. It’d just take a little bit longer.

Lambda ain’t about waiting around for you to get paid. They want theirs now.

The second excuse Allred offered was worse: if students get into situations where they can’t pay, they won’t pay.

Note: he didn’t say they wouldn’t owe the money, just that they’d decide not to pay it.

And he’s right.

People low on cash have long known how to prioritize debts based on consequences. With this sort of statement from the CEO, it sounds like they aren’t going to be militant about enforcing rigid payback terms.

Until they are.

One day they might be very laid back about it . . . and the next day Austen might decide he wants a new Tesla. Maybe he’ll start selling those old debts to collectors to juice that P/L for a fat year-end bonus.

So while you’re working in an entry-level job, dodging calls from whatever shady debt collector is calling about your $700 Lambda School payment2, Austen is going to be cruising around in his new Model X.

You’re welcome.

It’s important to consider one additional point: women and people of color generally make less, with the same experience and credentials, than white dudes. So women, people of color, and especially women of color are at far, far greater risk for landing in a bad situation here. I don’t know that that’s intentional, but it is reality.

It’s About Trust

Ultimately, you’re putting a lot of trust in these folks. Do they deserve it?

I don’t think so.

First, tuition aside, the program is only a year old. It’s for-profit. Their CEO has zero background in education (aside from, presumably, having received one at some point).

Further, this financing plan they have? It’s capped at $30k. But, the school only costs $20k to run at a profit. So they’re making $10,000 on top of the profit they’re already making on the school. This is like taking a loan at an APR of over 40%.

“But,” you might think, “look at the success stories on their website!” Ah, yes. You should check the fine-print on those. Among their success stories are folks with a decade of prior dev experience, prior bootcamps, bachelors in C.S., and various other experience or education that made the bootcamp more or less unnecessary.

I wonder if the people in their success stories paid full price for the school, or if Lambda offered free/cheap courses to already-successful devs to puff up their homepage.

Finally, consider the way the CEO responds to having these points brought up on Twitter: he blocks people.


I wouldn’t say it’s a scam — but there’s a lot of hidden risk for students here.

These issues are theoretically fixable, but CEO Austen Allred seems more interested in profit than education. I’d recommend folks stay far, far away from Lambda School.

If you feel like this is your way in, scrape together some money to have a lawyer review the contract and offer suggestions to protect your interests.

  1. At least. The way it was explained, it sounds to me like the bail out clause pauses if you get a tech job but it’s below their threshhold. 

  2. Let’s be honest, we’re only one step from shady debt collectors being the next YC Startup.