Coding bootcamp App Academy was an early adopter of the student-financing option known as an income share agreement, or ISA. But after nearly five years using the model—where a student doesn’t pay tuition up front, but owes their school or lender some percentage of their income for a set period of time after landing a job—the school had to alter its plan.
App Academy, which has locations in New York City and San Francisco, recently tweaked its model, offering a slightly different financing option: deferred tuition. That model is similar to an ISA, in that students don’t pay back tuition fees until after they are hired. But instead of financing tuition via a portion of their income, students pay back a flat fee.
For App Academy, the subtle nuance was necessary to keep the school in business. According to Daniel Filous, vice president of marketing at App Academy, the company chose to change the plan for both its east and west coast locations to comply with a New York state regulation that reads: “A school shall provide the same instruction, tools, equipment or instructional supplies, and charge the same tuition rates and other fees or charges, to all student or groups of students in like circumstances, unless otherwise approved by the commissioner.”
“Students have to be charged the same amount for the same class,” Patel explains. “You can see why it was written and the point is to ensure there is no discrimination happening.”
But unclear is where that line is drawn. Because under App Academy’s deferred model, prices still differ. For instance, students can choose to pay $17,000 for the 12-week program up-front, or they can choose the deferred plan where they don’t pay back until after they get hired, but eventually pay back $28,000.
“I don’t think it makes sense,” Kush Patel, CEO of App Academy, admits about the legal interpretation. “It's a very specific reading of the law that is against us and it's unclear if the commissioner woke up on the wrong side of the bed or lobbying efforts but it doesn't make sense.”
“It seems to me of another example of how there are so many rules in the system now that make it hard to do ISAs,” says Kevin James, CEO of Better Future Forward, which provides schools with funding for ISAs.
Deferring due to gray areas
The law that App Academy is basing its new financing plan on doesn’t explicitly mention income share agreements. And at least nine bootcamps continue to operate with ISAs or deferred tuition in other states.
“Regulatory issues are pretty common in the bootcamp industry; schools are constantly working through them because they typically just move at a quicker pace than traditional universities,” says Liz Eggleston, co-founder of Course Report, which researches bootcamps. A bill introduced by Senators Todd Young (R-IN) and Marco Rubio (R-FL) in February aims to create a legal structure for the income-sharing model, but has yet to be passed.
New York Code + Design Academy, offers a hybrid ISA approach that involves a deferred plan because the financing is based upon a single tuition fee, rather an a percent of an income. So far the ISA has been approved by regulators for the school’s Salt Lake City and Philadelphia locations, and approvals are still pending in New York and Washington D.C.
Their model involves a flat tuition fee of $15,000 that a student has to option of paying back after they make a salary of at least $40,000. They they pay the tuition via increments of 8 percent of their income, and they can choose to defer to start payments for up to 24 months after they graduate.
Fearing the legal interpretation that App Academy was unable to avoid, Jeremy Snepar, president of New York Code + Design Academy, says when designing the model, “we didn’t want to create a financing product that throws us into legal and ethical grey areas.”
Deferred tuition or loans?
Alexander Holt, an independent education consultant who researches ISAs, sees “a spectrum of risk-sharing” among the income-sharing and deferred tuition models. A coding bootcamp’s “reputation is based on the perceived ability that the student will get a job,” he says. But Holt isn’t convinced that a deferred tuition plan puts an institution's skin in the game the same way it might if students are required to pay back an amount based on income.
“What happens if they don’t pay it back,” he asks. “Could it be similar to a high interest loan? That could become predatory.”
For App Academy, the solution to that is a promise that the school will absorb deferred tuition costs if students don’t get a job that pays at least $50,000 in their first year after graduating. Anything less than that salary, says Patel, “is not a success in our book.”
Private lenders operating in the bootcamp space are navigating the murky legal waters, too. The Skills Fund, a loan provider for students attending bootcamps, does not offer ISAs but has since its inception allowed students to defer full repayment on their tuition loans until two months after graduating.
Rick O’Donnell, CEO and founder of Skills Fund, says that ISAs offered by bootcamps mirror challenges facing traditional student loans. “There’s a lack of clarity in terms and actual costs, aggressive repayment schedules, and the possibility of the student paying up to four times the average bootcamp tuition costs,” he says “The regulatory grey area only adds to why the current form of an ISA is not the answer to enabling student access.”
