Dive Brief:

  • After being fined last year for operating without California’s approval, coding academy Lambda School has received the state’s blessing, its regulators and the company say.
  • At issue was the method by which most Lambda students pay for their education: income-share agreements (ISA), in which they give back a percentage of their pay after they finish a program. 
  • Lambda developed an alternative way for California students to finance their tuition. While ISAs continue to garner attention, critics say more oversight is needed. 

Dive Insight:

California’s Bureau for Private Postsecondary Education (BPPE) fined Lambda School $75,000 last year for operating without state approval.

Lambda officials immediately began registering with BPPE after the fine, they told Education Dive earlier this year, though the school did not heed the state entity’s order to halt its work. The school is still appealing the citation from BPPE, according to a spokesperson with the California Department of Consumer Affairs, which oversees the agency. 

ISAs have been contentious with BPPE. The state body rejected the school earlier this summer “entirely” because of the financing model, the school’s co-founder and CEO, Austen Allred, wrote in a June blog post. Students can pay full tuition upfront, which is typically $30,000, but most opt for the ISA. After getting a job that pays at least $50,000, ISA students pay 17% of their salary every month to the school for 24 months, stopping at $30,000. 

BPPE still didn’t greenlight ISAs when it approved Lambda’s operations, Allred wrote in a more recent blog post. Instead, the school will offer California residents a retail installment contract. The arrangement is similar to an ISA with a few key differences — namely, that students don’t stop paying after 24 months but rather must continue until they’ve given back the full $30,000. Students based in other states can still use an ISA. 

“[T]his approval is a massive milestone, but not the finish line,” Allred wrote. “We believe the ISA remains one of the most student-friendly, lowest-risk alternatives to traditional student debt, and we plan to continue to advocate for it in California and the rest of the U.S.”

The consumer affairs department spokesperson provided a statement on BPPE’s behalf, confirming that Lambda could operate legally in the state.

“Regulatory approval ensures that institutions provide a quality education to students, in turn opening pathways to career opportunities and financial independence,” the statement reads. “As an approved institution, new and existing students are afforded all of the rights and protections offered by the Bureau and the state of California.”

Though ISAs have become more prominent in recent years, they have proven controversial nationally. They tend to be used by unaccredited schools such as Lambda. Accreditation would enable students to receive Title IV money, though Lambda officials have said previously they don’t want to take federal aid. 

But accredited colleges have begun to use ISAs, too, as an alternative to loans and other forms of institutional aid.

Critics of ISAs say the financing tool is akin to debt and may even be more restrictive than private loans. For now, ISAs are covered under consumer credit protections. But supporters of the model are seeking their own categorizations, which a recent analysis by The Century Foundation, a left-leaning think tank, suggests could risk leaving ISA users with fewer protections.

State and federal lawmakers have proposed ISA-specific regulations, and while some state efforts have taken off, federal-level proposals have stalled. A bipartisan bill introduced last year, led by prominent legislators such as Sen. Marco Rubio, R-Fl., did not see any movement, but it would have introduced a regulatory framework for ISAs.

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