As somebody who is currently in university and about to graduate, I recognize the variety of inefficiencies that currently exist with the university business model. I also recognize that the current university model is almost laughably outdated.
After discovering Lambda School and their business model, I believe that Lambda School will truly change the future of higher education — forever. I know that’s quite a statement, but in this article hopefully I can convince you that this is the case as well.
Before I begin with showing how awesome Lambda School is, however, I’d like to begin by showing the inefficiencies with the traditional university model as it exists today. Hopefully this will show why we need a radical change in higher education, and why I believe Lambda School is the answer.
Why the current higher education model is inefficient and outdated
Most higher education, as it currently stands, is horribly inefficient and outdated. I believe that most university students (as well as university graduates) inherently understand this fact, but are either unaware of how bad the problem really is or are unaware of how to fix the problem.
University graduates have massive loans that they can’t pay off
One of the main problems facing university students today is the student loan debt crisis. This refers to the massive amount of loans that university students have to take out to pay for their tuition. The problem is much, much worse than you might initially think.
According to Forbes, there are over 44 million student loan borrowers in the United States who collectively owe $1.5 trillion in total. That means the average student debt for university graduates in 2016 is $37,172!
That amount of debt is NOT something that can be paid off by simply working at McDonald’s during the Summer between school years.
People from older generations often talk about paying off their tuition by working their way through college, but that isn’t exactly possible today when the average student loan debt is greater than the annual median income of $31,099.
You might argue that it is the fault of these university students for taking out these student loans in the first place, and that nobody forced them to take out these loans. However, there are some key points to consider.
First, the adage that “you must attend university to get a good job” is drilled into the head of every high school student across the United States by high school counselors. It’s not exactly surprising that most students attend university, even when they can’t afford it, when they’re convinced that they’ll be left homeless eating food out of a trash can if they don’t have a university degree.
Furthermore, high school counselors often give their students the (incorrect, by the way) implication that the more “elite’ or “prestigious” the university, the higher lifetime income they will receive and the likelier they are to get a job. When students are accepted into these prestigious universities, high school counselors and high school teachers often point to them as exemplary students that are to be modeled.
The problem with this, however, is that these prestigious universities have higher than average tuition costs. Occasionally these tuition costs will be covered by the university if the university has a particularly large endowment, but usually students will still have to pay a significant amount of money to attend these prestigious universities. When universities do cover the tuition for the student, they usually do not cover rent, relocation costs, and other factors when offering financial aid.
You might wonder why student loan debt has risen so much lately. Part of the problem is…
Exponentially rising costs for university tuition
If you take a look at the graph above, the problem with university tuition should be immediately obvious.
“But wait”, you might say. “Yes, tuition is rising but isn’t that just because of inflation?”
The graph above is the average tuition and fees for UC and CSU universities in California AFTER taking inflation into account. If university tuition simply increased to match inflation, then universities would be in a much better state than they currently are.
The problem is that even after inflation is taken into account, the cost of tuition is still rising significantly.
But why is the cost of university tuition significantly rising? I believe that university tuition costs are rising because…
Most universities focus on outward appearance than helping their students
Most universities today are concerned with “appearing good” than actually being good and providing their students with help and support. This causes the cost of tuition to rise without actually helping any of the students. Some examples of this include…
Large amount of university administrators
According to the Princeton Review, in 1865 the average university had four administrators for all of its students. By 1965, the average university had 225 administrators. Today, the average university has almost 500 administrators. Collectively, from 1987 until 2012 universities added 517,636 administrators. That’s 87 new administrators hired every day!
That’s incredibly bad for students, because universities have to raise tuition costs to pay for all of those administrators. Oftentimes, these administrators do not actually do anything except contribute to the university bureaucracy. Members of the university administration include the assistant to the assistants of the associate University Dean of Computer Science.
These administrators don’t improve the university productivity, and if anything hinder it significantly. Believing that the university productivity can improve by ten by hiring ten times as many employees is as ridiculous as believing you can get a baby in one month by impregnating nine women. Some things just take time, regardless of how many people are involved.
How Lambda School will fundamentally change higher education
So what is Lambda School, and why am I so ecstatic about what they are doing?
In many ways, Lambda School is similar to many other programming bootcamp programs that exist today. These programming bootcamps promise their students that after learning programming for X amount of weeks, they should be able to get a job within the tech industry.
Incoming Sharing Agreement
Lambda School offers the same promise, but adds an interesting twist on an old business model. Instead of requiring that students pay an exorbitant fee upfront to take Lambda School classes, their students pay a grand total of $0 upfront.
How is that possible? Lambda School has a unique business model, in which Lambda School graduates pay 17% of their income to Lambda School for the first two years after they graduate if the student makes more than $50,000.
Furthermore, total tuition is capped at $30,000 which means even if the student makes a significant amount of money in the first two years after graduating they are still limited in the amount that they have to pay to the school.
The income sharing agreement model is a big deal because it perfectly aligns the incentives of Lambda School with the incentives of its students. The incentives are not aligned with traditional universities.
It’s readily accepted that most people attend university to increase their chances of receiving a high-paying job after they graduate. Traditional universities don’t particularly care about student outcomes after their students graduate, however. Universities already received money from the student in the form of upfront tuition money, and whether or not the students receive high-paying jobs is irrelevant to the university.
In the case of Lambda School, however, the school has a strong business incentive to ensure that its students receive high-paying job offers once they graduate. If their students can’t find a job after they graduate or receive low-paying jobs, then Lambda School doesn’t make much money.
Another unique aspect about Lambda School is that it is…
That’s right. Lambda School is 100% online, which means students can receive the lessons anywhere in the world with an internet connection.
These are live online classes, in which students have access to one-on-one help from their instructors. Furthermore, students can message their instructors and teachers assistants on slack with any questions that they have.
The courses being offered completely online means that Lambda School saves costs that traditional universities have to pay for, such as expensive and elaborate buildings to impress potential students and faculty members. Lambda School can use their savings to invest in better quality lecturers, teachers assistants, as well as building out their online platform.
Awesome Student Outcomes
According to Lambda School’s website, 83% of the school’s students are hired within 6 months of graduating from the program.
The median starting salary for their students is $70,000. That’s more than double the median personal income in the United States!
Lastly, Lambda School’s average rating online is five stars!
Alumni of Lambda School have gone on to work for Stripe, Uber, Nordstrom, and other awesome companies as developers.
Lambda School will help modernize and improve higher education for good. This is a result of Lambda School’s unique business model of using an income sharing agreement to generate revenue and its focus on student outcomes.
As the business model proves to be successful, I’m sure that more schools will adopt a similar business model to Lambda School for other industries other than software development. These schools will end up innovating the education industry and providing a service to its students that focuses on student outcomes.