The Verge's expose on the Lambda School is a must-read cautionary tale for anyone who is considering - or knows someone who is - enrolling in a private data science or coding bootcamp. It's a story of how Silicon Valley dropped their "free stuff" business model on education, and it scorched the earth. Finally, a journalist is calling out this scheme.
The Lambda School is a pioneer of the "no upfront cost" private training program. Under this scheme, students pay nothing until they land a job. When they get a job (that meets minimum requirements), they are required to send 17% of their pre-tax paycheck to Lambda for a number of years.
This business model isn't really new: it's "vendor financing" used in other industries, like equipment rental or car sales. In effect, Lambda (the vendor) fronts money to students (the customers) to buy its product in the hope that the students would repay it in installments while the product is consumed. This is different from a mortgage in which a third party (bank) lends the money and takes the risk (although the education loan model also exists in the bootcamp world).
Without a doubt, "free stuff" schemes are popular with prospective students. In the last year of running our bootcamp, we've been fielding more and more questions about whether we offer a pay-after-you-get-a-job plan. We politely turned these prospects away.
The scheme sounds too good to be true, and it is. The Verge documents a wide-ranging set of grievances from Lambda alumni, including:
- instructors unable to provide answers to even basic technical problems
- curriculum that "doesn't prepare people to pass even a first-round tech interview"
- courses that are "indistinguishable from any of the free resources available online"
- disorganized, unprofessional and incompetent instruction
- instructors seemingly reading off a script
- assignments seemingly lifted from free online training materials
- class projects uploaded to GitHub that contain obvious errors
- no feedback on class projects that were found to have errors
- some alumni being told by employers they don't qualify for job openings
Is it the fault of the Lambda School? Yes, but not fully.
Students have a choice, and many choose to ignore their grandma's precious advice: nothing in life comes free. Let me explain why the "free stuff" scheme is too good to be true, even for school management.
A majority of the students that the Lambda School enroll will not produce any cash till years out. But cash is required to build the school's brand, market the program, enroll students, pay instructors and staff, rent space, etc. Who's paying for all the expenses while waiting for revenues to arrive? Venture capital.
VCs chase moonshots - they fund near-term losses but demand "hockey-stick" growth that could be turned into billions. If money is lost on every sale, and sales are supercharged, the business is vaporizing cash non-stop. Even with the VC backing, managers have to control the expenditures.
The costs of operating a bootcamp fall into two large categories. Costs such as classroom rental and brand marketing are fixed costs, meaning that they don't grow (or grow slowly) as the number of students increases. Other costs such as teaching assistants, counsellors and supplies are variable costs, which means every incremental student brings the cost up.
In a regular school that charges tuition, revenues also grow as enrollment rises. In the "free stuff" scheme, not only do revenues not scale with class size, but there are no near-term revenues at all with more students.
So these "no upfront tuition" programs prefer to spend on fixed costs rather than variable costs. Fixed cost - say, cost of a building - is distributed over more students, bringing down the per-student expense.
Variable costs however are headaches. Let's say the school offers a mentorship program. Each additional student requires an additional mentoring relationship. Mentors are moonlighting industry professionals, paid on an hourly basis. Every extra student adds mentoring hours, and expenses.
How do managers control variable costs? They can pay a lower hourly rate to the mentors. It shouldn't surprise you that paying less means the mentors are less qualified. Or, they can ration the services. That's why colleges don't provide a career counsellor for every student.
Lambda School students complain that some instructors are reading off a script. This might be another cost containment technique: the school hires a more expensive instructor to create class materials, and then employ minimum-wage teachers to read off the scripts. The Verge reported that the "team leads" - who sound like teaching assistants - are paid a whopping $13 per hour.
Why are teachers paid so little? If you think about it, it's because the school is being run without collecting upfront tuition.
Remember what your grandma told you: nothing in life comes free.
Comments