Announcing Our New ISA Financing Blueprint and $100M in New Financing
We started Bloom Institute of Technology (formerly known as Lambda School) with one overarching goal: to create a school where the incentives of the school are entirely aligned with the incentives of the student. Today we’re excited to further that mission by announcing a new blueprint for incentive-aligned ISA financing, and a $100 million investment in BloomTech’s ISAs.
How We Got Here
Incentives in traditional higher education today are fundamentally misaligned. Universities are not financially incentivized to ensure students succeed, creating a broken system in which students assume massive risk (and debt) with no guarantee of success. The result has been a generation crippled by more than $1.6 trillion in outstanding student loan debt.
We believe that part of the solution to this problem is incentive alignment.
At BloomTech, we invest in you. With our popular income share agreement, or ISA, you invest in yourself, too. When you pay for your BloomTech education with an ISA, you’ll start by paying for a fraction of your tuition up front. Once you graduate, we’ll help you land a well-paying job—and then you’ll pay for the rest of your tuition with a percentage of your income for a limited time.
In other words, an ISA funds your tuition so you can pay back BloomTech later.
Here are some of the basics about ISAs at BloomTech.
- Know what you owe. Unlike with a typical loan, the maximum amount you owe will never increase with an ISA. Your total payment amount is capped at $40,000*, and you may end up paying less.
- It scales with you. Your goal is to get a great job; that’s our goal for you, too. Once you start earning at least an annualized $50,000** a year, you’ll pay us back with a percentage of your income each month. If your earned income falls below the minimum total amount, your payments will be deferred until your income reaches the minimum again.
- No lingering obligations. Your contract is finished once you complete the ISA payment schedule or reach the payment cap, whichever comes first. And if you aren’t making the minimum average monthly income, and have had deferred payments for a total of 48 months, then your ISA expires and you don’t owe anything else—even if you’ve paid nothing up to that point.
At BloomTech, we are committed to providing more people with a direct and lower-risk path to a rewarding tech job. That’s why we offer flexible options to pay your tuition—and launch your new career.
In this new model the school must find a way to cover upfront student expenses. As a new company, the only way we could fund tuition costs in the beginning was by utilizing venture capital, but VC investors want to make big bets and see big multiples. Venture capital is perfect for investing in quickly growing companies, but not right for investing in ISAs. We knew from the beginning that we’d need to figure out how to finance ISAs in an aligned manner to make our school work long-term.
Another suboptimal option would be to sell ISAs outright. Simply put, we could sell ISAs to an investor, and if students are hired and make payments, the investor will be happy. If not, the investor will stop buying ISAs and the school will eventually go out of business. Unfortunately this feedback loop takes years, and there is no short-term incentive to which schools can be held accountable.
Neither of these solutions are the right long-term approach for BloomTech and are not representative of our values.
Our finance team spent over a year designing a way to finance ISAs so that all of the following remain true:
- The school retains skin in the game.
- The school makes more money if students are more successful, and less money if students are less successful.
- That feedback loop happens quickly – the school’s finances are swiftly affected by student performance.
- The school will go out of business if students don’t succeed.
Introducing Our New ISA Financing Model: Keeping Incentives Aligned
Today we are excited to roll out a new financing mechanism with marketplace partner Edly. This methodology allows us to provide value to students, grow sustainably, and keep incentives aligned – without needing to continuously rely on venture capital.
Perhaps most importantly, it will not affect the student experience or payment amounts. Here’s how it works:
- ISA contracts are grouped together in cohorts of 300-1000.
- Investors use historical placement and repayment data to determine the likely future value of those ISAs, and apply certain discounts to create what we call a “performance adjusted advance.” Investors pay an advance, which is used to cover some of the cost of the training.
- Then, that advance is performance-adjusted automatically - meaning it adjusts based on a three-month review. If students do better - find jobs faster that pay more - the advance goes up. Similarly, if students do less well the advance goes down.
- The school supplements the advance with its own cash to cover the remaining cost of training students.
- The group of ISAs first repay the investors the advance plus interest.
- After the advance plus interest has been paid back, the school and investors share in the ISA payment revenue collected thereafter, with BloomTech getting the majority of that revenue.
In short, BloomTech gets a limited, weighted advance to cover some of its basic costs, invests money of its own, and the remainder is entirely dependent upon outcomes. Because a student’s payment obligation is only governed by the ISA, this creates no risk for students, and the school’s success still completely depends on student success.
It also means we can lower operational costs and do more for students, such as investing in curriculum improvements, expanding our instructor team, improving the immersive Build Weeks and BloomTech Next programs, hiring more people for career support, and providing additional student services like Modern Health, free of charge. Lastly, this arrangement will not affect the student experience during or after BloomTech.
This is a lot of detail—more than students need to understand—but we’re choosing to be unusually transparent about BloomTech’s finances because students deserve to understand the incentives of their school. This new blueprint not only preserves the incentive alignment we've oriented around from day one, but along with the new $100M financing, it also means we can continue building the school our students deserve.
Published February 19, 2020