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Lambda School garnered a lot of attention and raised some $ 130 million in venture capital funding from an impressive list of investors, for its innovative approach to teaching coding: offering six-person virtual computing courses. months for $ 30,000, with the option to pay for classes in installments based on a sliding scale that only goes into effect after landing a job that earns at least $ 50,000.
But it turns out that the startup is also causing a lot of controversy. In the latest development, three students sued the company in California, alleging deceptive financial and educational practices.
Costumes – which are worn by the non-profit organization National Student Legal Defense Network on behalf of Linh Nguyen, Heather Nye and Jonathan Stickrod – go back to a period between 2018 and 2020, and they focus on four basic allegations.
First, this Lambda school has falsified and distorted placement rates. Second, the Lambda School has distorted the true nature of its financial interest in student success (in particular, there are question marks over how Lambda manages its ISA contracts and if it benefits from them). Third, he twisted and covered up a regulatory dispute in California that forced the school to shut down. And fourth, that she signed up and provided educational services and signed ISA contracts in violation of that order.
Deposits for all three cases are integrated below.
The three students are currently all in the hot seat for their Lambda tuition fees, which they have chosen to repay in installments through the school’s Income Sharing Agreement (ISA) model. The lawsuits do not disclose how much the three individuals are claiming for damages.
To those who have been following the Lambda School news for the past several years, the claims detailed in the lawsuit will sound familiar.
the inflated placement rates; and the fact that he was not legally authorized to operate, but still accepted students, signing ISA agreements and teaching, for example, have all been reported during this time, along with other criticisms of how self-proclaimed CEO and founder Austen Allred “growth hacker“Tapped his other Twitter accounts and those of Lambda to hype with the school.
Some of the issues raised in the lawsuits have also since been resolved. For example, the prominent display of over 80% of students who find employment can no longer be found on the Lambda site, and in California you no longer get an ISA but a retail contract (similar but different ). But as with litigation, lawsuits based on past issues of people who were affected by them while still active, are, in many ways, the next logical and unsurprising step.
There is also a specific strategy behind the simultaneous filing of these three cases.
Alex Elson, co-founder of the National Student Legal Defense Network, told TechCrunch in an interview that the ISA contracts that students sign at Lambda contain arbitration clauses that prevent students from arbitrating against Lambda as a group, that is, that is, class actions.
The idea is that by simultaneously bringing three almost identical individual cases against the school, defendants can both expose the widespread practices of Lambda and pave the way for wider relief for others affected in the same way. . (The Student Defense Network’s co-counsel in this case is CalebAndonian PLLC and Cotchett, Pitre & McCarthy LLP.)
Initially incubated at Y Combinator and backed by a long list of investors that include GV (Google Ventures), Gigafactory (ex-Founders Fund Partners), GGV and more, Lambda School has had a tough time over the past year, a period that has seen the COVID-19 pandemic disproportionately impact some parts of the economy but not others.
Edtech has been widely seen as an area of ​​huge growth, but that may not have been the case for edtech startups specifically focused on professional and tech jobs, given that the tech world has seen a lot of freezes. hires and layoffs, as companies sought to do so. reduce costs in the face of the unknown.
Lambda had two rounds of layoffs in the span of a year, and it appears that in one of them he also changed his teaching model, removing TLs (team leaders), paid mentors who helped assess students, and instead moved to a model where students mentored and assessed themselves.
It also changed the courses themselves, shortening them to six months from their original nine and 18 month formats – but without lowering the prices for those courses.
And that’s not quite beyond all of its regulatory issues, either.
Just two weeks ago, the California Department of Financial Protection and Innovation (DFPI) announced a regulation with the school on the language it uses to finance contracts with students.
Specifically, the DFPI disputed how it stated that Lambda falsely described its financial arrangement with students as a “qualified student loan … subject to the limitations on release contained in … the United States Bankruptcy Code. . “
(Educational loans are generally exempt from discharge from bankruptcy – when a debtor is not required to pay a debt because that debtor is bankrupt, it is a discharge from bankruptcy; typically, loans education is not covered by this, so the problem here was that the Lambda School was claiming that even if a student files for bankruptcy, that student will still have to pay Lambda back.)
“The language violates California’s new Consumer Financial Protection Act (CCFPL), which came into effect this year and prohibits companies from engaging in illegal, unfair, deceptive or abusive practices,†DFPI noted.
The regulation requires Lambda to advise students that the wording of the bankruptcy discharge provision is not correct; retain the services of a third party to review the terms of the school funding contract to ensure that it complies with all applicable laws; and undergo a review of its marketing materials to ensure that the information is accurate and is not likely to mislead consumers.
You could say that all these problems are the stakes of the table to be a start-up and to try something new: the school moves quickly, breaks things and repeats along the way to understand everything.
But for a service that can force students to pay back $ 30,000, it’s a big price for others to pay when these things don’t work quite as advertised.
Yet despite all of this, Lambda also continues to have a lot of supporters and partners. Last month, for example, he announced a new backend engineering program developed with Amazon. And while he doesn’t seem guaranteed that taking the course will instantly open the door for you to a job with the tech giant, it’s a sign of how there is remains interest in Lambda’s big idea.
We’ve also reached out to CEO and Founder of the Company, Austen Allred, and the Company itself, for a response and we’ll update this article as we learn more.
Updated with Lambda’s response:
In accordance with the policy, we do not speak publicly about the individual situations of students or alumni, but we are of course happy to examine questions directly and to review any cases that are filed. Typically, however, for any student’s ISA payments to be enabled, they would first have signed an ISA contract and then landed a role leveraging skills learned at Lambda School which pays $ 50,000 or more in salary.
Our mission is to reduce risks in education and expand access to better paying jobs. For this reason, our ISAs (and our RICs in California) are designed with policies that are as flexible and student-centered as possible. This includes our pro-rata and voluntarily generous pro-rata refund policy for students who decide to leave the program, regardless of how tuition is paid. In addition, if a former student loses their job, salary, or earns less than $ 50,000 per year, their payments are immediately suspended. ISAs expire completely after 24 payments or 60 months deferred, even if the total paid is less than $ 30,000.
Our number one priority is student success. We guarantee the quality of our instructors and the proven results of our students (which we detail in more detail) here and in our results reports). While we would always strive to ensure that our students and alumni have a positive experience and achieve their career goals, we are also ready to work with individuals and review cases to reach a resolution.
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