Lambda School's Income Share Agreement: What You Need to Know

Table of Contents

• Q&A

Lambda School offers an income share agreement where students pay nothing up front, and don’t pay until they land a job. It sounds almost too good to be true, so we sat down with Lambda School’s VP of Finance, Trevor McKendrick, to find out exactly how Lambda School’s ISA works, what the eligibility requirements are, and what the repayment process looks like. Trevor also tells us how ISAs compare with loans, how the Lambda School Careers Team works to help students find jobs, and what sort of salaries their graduates are earning.

What you need to know:

• Anyone who is legally able to work in the US and have a US bank account can apply to use an ISA for Lambda School’s immersive courses.
• Grads start repaying once they are earning $50,000 per year.
• Grads pay back 17% of their salary for 2 years, with a $30,000 cap on repayments.
• If grads don’t find a job within 5 years, they don’t have to pay anything.
• Students can choose to pay $20,000 up front instead of using the ISA.

Q&A

Trevor, what’s your role at Lambda School and how are you involved with Lambda School’s income share agreement (ISA)?

I work with students to make sure they understand their income share agreement. I’ve also helped create the FAQs for students on our website to make sure students understand what they are getting into when they sign an ISA. Finally, I work with our partners at Leif, who manage the signing, collection, and on-the-ground work for our ISAs with our students.

Why does Lambda School offer an ISA? Has Lambda School always offered one?

Lambda School has been around for just over 18 months and I believe we’ve offered an ISA for all of our immersive courses the entire time – the Fullstack Web Track, the iOS Development Track, the Android Development Track, the Data Science Track, and the UX Design Track.

In most education today, you pay tuition upfront regardless of your outcome. College is a classic example: you pay all this money before you walk in the door, often taking out out large loans. It’s not that those schools don’t care about their students, but there is a lack of an incentive to get students a job when they graduate.

We like committing to ISAs because if our students can’t get a higher paying job after we’ve taught them these new skills, then Lambda School ultimately fails. We are excited about that incentive, and students, employers, partners, and other people around the world, are also really excited about seeing an educational institute like Lambda School align incentives with the goals of its students.

Can Lambda School students still pay upfront or are they required to use the ISA option?

Yes, a small percent of our students choose to pay upfront. The majority of those are in the Data Science Track. The Data Science class tends to attract students who already have some sort of a development background, meaning they already had a job that pays reasonably well, so they feel a little more comfortable paying upfront. We’re happy to offer that to them.

Can you explain why you chose to partner with Leif to power the ISA and how that partnership works?

Leif and Lambda School were both some of the first organizations in the US to get into the ISA space – we’re one of the first schools to offer ISAs, and Leif is one of the first organizations to service ISAs. We both took a bet on each other, and it’s been working out really well.

In our partnership, Leif services the ISA. They manage all of the contracts and signatures, then once a student has graduated and successfully increased their income, Leif also manages the collections on those ISAs. At Lambda School we have a really good relationship with our graduates, so we sometimes help with that and reach out to students too.

How do you make sure students pay back the ISA?

We track and incentivize our students to pay their ISA back in a couple of ways:

1. When they sign their ISA, students agree to give Leif, our partner, access to their tax returns, so Leif does a reconciliation at the end of the year to make sure graduates have been reporting on their income accurately.
2. There is an incentive for graduates to report accurately and pay on time because if they don’t, it could affect their credit score. In that way, the ISA is similar to a loan, in that there can be consequences if it’s not paid.

During the application process are you assessing students based on whether they are a suitable candidate to pay back the ISA? Are you looking for someone with a certain background?

No. We accept about 5% of applicants, but we don’t reject people because of ISA concerns. We accept students based on our judgment about their ability to succeed. We have various coding tests and an admission process where we do our best to determine an applicant’s potential.

What are the eligibility requirements to get an ISA? Does a student have to be living in a particular city or hold a degree or have a certain credit score?

The main criteria to qualify for an ISA is that you have to be legally able to work in the US, and you have to be able to have an American bank account. You can live and learn anywhere you want. If an American citizen with an American bank account is living abroad, that’s fine too. We just did a company retreat in Tampa Bay Florida last weekend, which wouldn’t be the first place you’d think of for developer jobs, but found we had 20 or more students who lived in the area, so they drove in to meet with us.

What are the terms of the Lambda School ISA?

• There is no upfront deposit.
• Grads start repaying once they are earning $50,000 per year.
• Grads pay back 17% of their salary for 2 years, with the important caveat that there is a $30,000 cap.
• From the time the student graduates, we have 5 years to collect on the ISA. If those 5 years go by, and the student hasn’t increased their income to at least $50,000, then the ISA expires and we don’t collect on it.

So if a student doesn’t find a job within the first two years of graduation, but finds a job within those 5 years, then they still have to pay back the ISA?

Correct.

Will you track students to make sure they are actively looking for work?

We have an entire team of people working with employers across the country to help our students get jobs. It’s something we think about constantly and spend  a ton of resources on.

That said, at the end of the day the student has to want a job, and be willing to put the work into preparing, applying, and interviewing.

Since it’s in Lambda School’s interest to get paid, how will Lambda School make sure grads find jobs earning over $50,000 (the threshold amount)?

The vast majority of jobs students get after they graduate are above the $50,000 threshold. The median starting salary of Lambda School grads is around $70,000. One responsibility of our outcomes team is to identify employers who are looking to hire junior developers, and invite them to do a brown bag talk with our students once a week. They love doing that, and they do it with the stipulation that they will also interview some of our students. And again almost all of them are employers that will pay more than $50,000 a year.

How many graduates have already paid back their ISAs? On average, how long does it take for graduates to pay back the ISA?

Graduates are definitely already making payments on their ISAs. But the ISA payments are over a two-year period, and we haven’t yet been operating for two years so no one has paid back a full ISA. Barring some emergency, we don’t expect it to take much longer than two years to fully repay your ISA. Some of our best students do end up with six-figure jobs, and developers tend to get significant rises pretty quickly, so some will end up reaching that $30,000 cap in less than two years.

For students trying to decide between another bootcamp where they can take out a loan, or going to Lambda School and using the ISA, what is your advice? What are the benefits of an ISA versus a loan?

We have a repayment cap of $30,000, but when you take out a loan, there are fees and penalties for not repaying the loan. With an ISA with Lambda, you know that if we don’t do our job within five years, you don’t have to pay us anything. It was something you tried and didn’t work out, and you move on.

If a student takes out a loan they are going to be on the hook for that loan plus interest, no matter what the quality of the school is. I would just recommend that you really look at how the school operates as a business, what are the school’s incentives, and can the school continue to operate if you don’t get a job? For most schools out there, they don’t need you to get a job in order to succeed.

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