If you haven’t heard of Lambda School, it’s time to start paying attention.

If you’re active on Twitter, by now you’ve probably heard of Lambda School — the online school where you owe nothing until you get a job.

If not, it’s probably time to start paying attention.

Lambda is bringing a much-needed change to the world of higher education & financial aid. Instead of paying for classes upfront, Lambda students don’t pay a dime until they get a job paying at least $50,000/year. Once they get hired, Lambda takes 17% of their earnings, until a payment cap of $30,000 is hit. If a student is unable to find a job with a salary above $50k per year, they are not required to pay anything.

Courses, which are all fully online & last about 7–8 months, range from computer science, to data science to UX and more. Lambda is putting their money where their mouth is; backing student success in a way that is, frankly, refreshing as hell. Lambda is taking all the risk in this equation: They pony up all costs upfront, and are even doing some fun experiments with housing stipends — trying to help address another one of the “financial elephants” in America’s room.

It’s now become common knowledge that student debt is a huge problem and is getting worse. As with so much else, not much has been proposed in Congress to help. Some are trying, but it’s unlikely that anything significant will happen in the near-term. The time to act was yesterday.Meanwhile, student loans just hit $1.46 trillion; double what it was at the end of the last recession. 27% of loans end up in default, private colleges are closing. Even Natty Light* is giving away a cool million to help grads payoff their loans.

It’s a mess.
If my personal history within the education industry has taught me anything it’s that there is an ungodly amount of room for improvement. At TrustedAid, one of my current projects and one I hold in high esteem, we show high school students how much their financial aid package would be, before they even apply. In a nutshell, we help underprivileged kids get the full college grants they deserve. We also include a guided FAFSA walkthrough so they know the right boxes to tick in order to get it. Think of it like TurboTax meets Financial Aid.

At lynda.com (acquired by LinkedIn and now called LinkedIn Learning) we prided ourselves on perpetual self-improvement through high quality, affordable training videos. To this day, the company helps people land new jobs in brand new industries where they had no prior experience. From Netflix to Lynda remains one of my all-time favorite public micro-experiments, and did not get the visibility I thought it should.

But while liberating murky aid data and closing the skills gap are two of the secondary problems with America’s higher education system, the fundamental problem remains: The value of a college degree is yielding diminishing returns. Getting a degree is more expensive than ever, while the overall value of a bachelor’s degree is worth less than it was 10 years ago.

And yet, the RONI, or “return onnon-investment” means going to college is still a no-brainer for most. Over her lifetime, the typical college graduate earns $570,000 more than a person with only a high school diploma. Saying no to college can have a tremendous cost. No wonder young people feel stuck.

Last week, amidst their Series B funding announcement, Lambda was profiled in the New York Times. The article was generally fair & balanced — unlike much of the criticism received on Twitter.

The type of financing agreement that Lambda has initiated is called an ISA, or Income-Sharing Agreement. While considered novel in America, ISA’s have been in use in other countries for decades. The most famous successful example of this, or at least what should be the most famous example, is Australia.

Australia’s higher education finance system, which has been around since the 80s, is known as HECS-HELP (Higher Education Contribution Scheme — Higher Education Loan Plan), or just HECS for short.

Anyone who knows me knows I’m a huge fan of Australia. For years I have been advocating that America would be wise to follow Australia’s lead in areas such as education, gun control, maternity leave, vacation time, retirement, coffee, avocado toast…the list goes on. So my opinion is a bit biased.

But HECS is, by all accounts, a fantastic system. When I lived in Australia and first heard about HECS, the simplicity blew my mind. It immediately became clear to me that some Frankenstein version of HECS would someday become the future in America. Although the system has been written about in the past (this Quartz piece is a great example) it seems only now to be getting the true recognition it deserves. From income-driven repayments automatically deducted from your paycheck, to regulating how much universities can charge (nearly all universities are public; Australia has only a handful of private universities), to the negligible 1.5% interest rate capped to inflation — something even Britain’s system cannot claim — Australia has what is arguably the best public higher education finance system in the world.

Because it’s clearly a superior, I assumed some change would be instituted at the federal level. But as we know where government is broken, private enterprise shall creep in. And Lambda has done so in a big way.

So Lambda didn’t invent ISA’s. But so what?

What they are doing is needed to help reduce US student debt, and focusing on student outcomes is a wonderful thing.

Lambda is attacking the student loan crisis on not one, but two fundamental levels:By flipping the financial incentives upside-down, they are paving the way for superior education financing systems to take hold.By investing so heavily in student outcomes, they are ensuring their own incentives are completely aligned. Lambda only succeeds if its customers succeed. That’s what a good business model is all about.

Together, Lambda represents a new way of thinking about higher education. A whole new protocol for how things could, and arguably should work in the US.

But while the ISA is currently the big draw, it’s not the financing portion that is going to make Lambda successful in the long run. There’s ultimately no moat with ISAs — anyone can do it, in fact others have already started.

What’s going to make Lambda successful well into the future is the fact that they are unashamedly, relentlessly dedicated to student success. The enthusiasm & zeal they bring when sharing mastery-based progression methodologies and student success stories — some of which are truly incredible — is something to admire.

Universities have been paying lip service to post-graduation student success for years. While Lambda is incentivized to help students succeed at all costs, Universities are often incentivized by little more than to keep their US News Ranking as high as possible, or to funnel tuition money towards the madness of their costly sports programs. Sure, there are plenty of colleges & universities that can boast graduate success numbers which rival Lambda’s — and at scale. But many others seem to have taken their untouchable, pedestaled position in society for granted. People are starting to wake up.

It must be stated that Lambda students work hard. Classes are taught by experts, and given the condensed 8-month timeframe are understandably intense. Students build real products & prototypes, participate in hackathons, and defend what they have built to their peers.In the wake of last week’s hubbub, criticism about Lambda has continued to float in.These include accusations of the model not being as scalable to non-CS related tracks, and even of “creaming,” or extracting the best students either from the state sector into the private sector.

Zeynep Tufekci brings up a very good point here about scalability. The model is likely not scalable to all traditional college majors without some significant adjustments. You’d essentially need the graduates with well-paying degrees to subsidize those with degrees in art history or French literature. Much like, well, like a good public system does. This would directly compete with Lambda’s profit motive, meaning they are likely to keep a tight focus on STEM and its various offshoots for the time being. (And this is to say nothing of the hugely important philosophical discussion around what a world full of pure STEM heads would look like to begin with)

As Lambda continues to expand into new verticals, they would be wise to take these types of questions seriously. Education is a touchy, personal subject for many. But in the meantime, their success stories are very real. CEO Austen Allred routinely tweets stories of regular people tripling or even quadrupling their income in under a year.

And remember: because the classes are fully remote, students from all over the US (and even now the UK) can attend. As the saying goes, talent is equally distributed, but opportunity is not. Frankly, there aren’t many opportunities for someone living in rural Iowa to earn a decent wage. Lambda changes that. They aren’t creaming the best students from top high schools across the country, they’re seeking out & finding diamonds in the rough. The second-order effects that these people’s wages have on their communities could be tremendous, and this flies directly in the face of the new geography of jobs. Wage arbitrage might be difficult for people to pull off, but it also just might help save the American middle-class.

Talent is equally distributed, but opportunity is not. — Leila Janah

All of these success stories make you wonder, gee, why can’t America just have something this at the federal level?

In an ideal situation, yeah, it would be nice if we had a system like Australia’s. I believe that America’s entire higher education system should function like a giant ISA; one where the high income learning tracks subsidize the ones which are less lucrative, but equally as important to society.

But a system like this seems like it’s decades away at best. The US government’s sluggishness & failure to act in a timely manner is Lambda’s gain. Timing is everything in business. Lambda is in the right place at the right time, they know it, and their execution thus far has been stellar.

In the meantime we should be happy they are so committed to keeping themselves accountable, and are moving the conversation forward. Universities and government have collaborated to get us into this mess. Now it’s time for everyone to start paying attention.If you have any doubts, just follow Austen on Twitter. He’s extremely provocative and a bit brash sometimes, and you won’t agree with everything he tweets. Heck, he even admits as much in his bio! But follow him and Lambda on their journey to remake education. Follow their student success stories, understand how aligned incentives bring out the best outcomes for everyone, and judge for yourself.

They may not be perfect, and they may not be for everyone. But they are undoubtedly changing the world for the better.

It’s inspiring to watch.

Note: In an earlier version of this story, I incorrectly stated it was was Natty Ice which was giving away a million dollars to help offset student debt. In fact, it was Natty Light. I sincerely regret this error.

Published by Stefan von Imhof

Leading Product at Flippa. Buying & selling micro-businesses on the side. My personal brand is all over the map.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: