Some Schools Are Offering Free Education in Return for A Share of Student’s Income

In response to the current $1.6 trillion in US student debt, some schools are offering students a chance to pay for their education, not by tuition loans, but by a contracts to share a portion of their first two-years of income. Purdue University, for example, sidesteps student loans by offering student income-sharing agreements that turn students into equity investments instead of debt assets. It seems to be working well. -GEG

Step side student loans: the Lambda School is the first school to equitize human labor as a business model.

Based in California, the school teaches information technology skills online and charges zero tuition, according to Bloomberg. In fact, it even offers select students a stipend as they attend. The school’s website describes it as a school that “trains people online to be software engineers at no up-front cost.”

But as always, there is a catch: what The Lambda School does ask for, is for students to pay back 17% of their income from the first two years of working, if their earnings exceed $50,000 per year. The school caps a student’s maximum payment at $30,000 and those who don’t earn $50,000 per year aren’t required to pay anything. Students also have the option of a “traditional” schooling arrangement where they pay $20,000 upfront and get to keep their future income (after the government takes its cut, of course).

As of now, there are about 1300 students enrolled and, confirming the company has investors’ seal of approval, it has already raised nearly $50 million. More importantly, its job placement record has been impressive so far, with 86% of its graduates getting jobs within 180 days of finishing their program. And the piece de resistance: the median starting salary is a whopping $60,000. 

The “free market” style benefits of equitizing labor are obvious: it gives the school incentive to invest in the future of its students. The school has an incentive to train and place students where they will earn the most return on investment for the school. Additionally, students who receive stipends can use them for further investments in training, which can be valuable for hard-working students from lower income backgrounds. It’s simple: higher earners pay back more and lower earners pay back less. 

Already the idea is being considered for broader adoption amid traditional universities. The model would include free or reduced tuition – similar to what Purdue is now offering – in exchange for a share of students’ future income. A second model would allow graduates to use a similar arrangement to pay back their federal student loans.

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