Eliminating Student Debt
We live in a time where people theoretically have access to an abundance of opportunities. Technological advancements have allowed people to work globally without leaving the comforts of their home (e.g. employees in America who regularly work remotely increased from 39% to 43% of the workforce between 2012 and 2016). The availability of information also means that people can learn whatever they want at their convenience (e.g. the rapid expansion of online courses/programs). Despite all this, the following is also true:
- The average Canadian university graduate finishes school with more than $26,000 in student debt.
- Less than half of all Canadian workers (49.8%) between the ages of 25 and 54 worked full-time, full-year jobs in 2015.
- Student debt is the second largest type of personal debt among Americans ($1.5 trillion in total).
- Since 1999, student debt has increased more than 500 percent. Unfortunately, average salaries for young people have not. In fact, since 2000, the average salary for young people has decreased by 10 percent.
Suffice to say, there is something broken in the current funding mechanism of traditional education. Moreover, the outcome associated with education (full-time employment) is no longer guaranteed.
The externalities associated with young adults burdened by debt while facing underemployment is significant such as:
- Preventing young adults from making staple purchases (cars, houses) at a young age.
- Increasing the risk of depression and anxiety.
- Influencing future generations in their career paths and decisions to enroll in post-secondary education.
The ideal way of solving these challenges is to map the costs with the outcomes of education (full-time employment).
A recent startup, Lambda School, founded by Austen Allred does exactly that. Lambda School trains people online to be software engineers at no up-front cost. Instead of paying tuition, students can agree to pay a percentage of their income after they’re employed, and only if they’re making more than $50,000 per year. If the student doesn’t find a job or doesn’t reach that level of income, he/she will never pay a cent.
We recently did an interview with Austen to learn more about his experience in growing Lambda to where it is today — having recently raised a $14M Series A and expanding to other geographies starting with the United Kingdom.
On the topic of the challenges around people getting hired post-graduation, Austen reflects on how salary is only one part of the picture:
“There a lot of little problems that a little bit of money can solve. It’s important to understand where these people are coming from. A lot of our students need food on the table today so even if there’s an opportunity to make $100k per year in six months, they would still need to opt for a lower paying job that pays the bills immediately. Even when a company is giving a 6-figure salary with reimbursement for relocation, the fact that reimbursements are not upfront can be a huge blocker for getting the candidate to move to a different location. There are also other smaller factors to consider including the quality of the computer and even setting up a bank account.”
Lambda School’s use of an income-sharing model alleviates the student debt pressure that many students from traditional universities and bootcamps feel. In his own words, Austen wants to “eliminate the risk of money when it comes to education”.
With this model, Lambda School is able to have a much more diverse population than the typical university or coding bootcamp.
“We’ve over-indexed on lower income/rural communities — populations who normally wouldn’t have an opportunity to become a software engineer. They tend to have an average income of $25k per year with a non-white racial background.”
It’s great to see organizations like the Lambda School challenging the status quo and building a more inclusive model for higher level education. Austen’s focus on rethinking the entire system is exactly the type of mindset we need to solve the crushing student debt problem being faced across Canada and the United States. The onus is on us to help organizations like Lambda School succeed by making sure that they have the base institutions in place to succeed (e.g. contract law and universal credit/income verification) along with a more open mindset that’s willing to look beyond traditional means (e.g. local education providers) to receive meaningful training/opportunities.
