Austen Allred, CEO of BloomTech: Aligning Education Incentives
Jan 23, 2024
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Austen Allred, CEO of BloomTech, discusses Income Share Agreements (ISAs) as an alternative to student loans. They explore the challenges of adopting ISAs in schools and the rising cost of education. Austen shares insights on universities acquiring coding bootcamps, being an investor and CEO, and offers unconventional perspectives on micromanagement and employee satisfaction.
Schools are reluctant to embrace Income Share Agreements (ISAs) due to financial risk and concerns about compliance with regulations, leading to alternative instruments with similar incentives.
Income Share Agreements (ISAs) have incentives that align with the long-term success of students and the financial stability of educational institutions, encouraging collaboration and focus on student achievements.
The traditional university system, along with government regulations, has led to financial challenges for students, resulting in the emergence of alternative models like Income Share Agreements to address education financing and ensure institutions are accountable for student outcomes.
Deep dives
Importance of Income Share Agreements (ISAs) for Coding Bootcamps
Coding bootcamps like Bloom Institute of Technology are exploring the use of Income Share Agreements (ISAs) as a payment method. ISAs allow students to pay a percentage of their pre-tax income for a specified number of years after they secure a job that meets a certain income threshold. The traditional payment models, such as upfront tuition fees or government-backed loans, are more profitable for schools. However, some schools are reluctant to embrace ISAs due to increased financial risk and concerns about compliance with regulations. The focus on reduced risk and the financial incentive for schools lead to alternative instruments similar to ISAs. The primary reason behind schools not adopting ISAs extensively is the financial trade-off they pose.
The Structure and Working Mechanism of ISAs
An ISA is a contractual agreement between a student and an educational institution. In Austin Alroyd's case, the ISAs at Bloom Institute of Technology state that students agree to pay a certain percentage of their pre-tax income for a specified number of years if their job meets a specific income threshold. Failure to pay results in default, although the consequences are not as severe as other loan defaults. Periodic income updates and reconciliation play a crucial role in ISA management. These updates are necessary to ensure that students are meeting their payment obligations. The ISA system operates similar to a payment plan, with students required to fulfill their financial commitments. While default instances may occur, the majority of students adhere to the payment terms.
Alignment of Incentives for Educational Institutions and Students
Income Share Agreements (ISAs) have incentives that align with the long-term success of students, as well as the financial stability of educational institutions. ISAs provide institutions with motivations to assess student potential for success and job readiness before enrollment. The outcome of a student's success directly impacts the institution's financial standing. Institutions offering ISAs are more inclined to assess the fit between students and their ability to achieve expected outcomes. This alignment encourages institutions to focus on student achievements and develop measures to ensure the success of enrolled students. Ultimately, this leads to enhanced collaboration between institutions and students, creating a mutually beneficial educational experience.
Challenges in Education Financing and University Systems
The traditional university system, compounded with government regulations, often leads to financial challenges for students pursuing higher education. Conventional financing options, such as student loans, organized within the current university system, often neglect the student's ability to graduate, secure a job, or make regular loan payments. This lack of focus on students' outcomes can result in financial burdens that can negatively impact their lives. Additionally, the cost of education has increased significantly, with a disproportionate rise in administrative expenses within universities. These factors have led to the emergence of alternative models, such as Income Share Agreements, to address the challenges in education financing and ensure that institutions are more accountable for student outcomes.
The Role of Apprenticeship Models and Changes in Education
Historically, apprenticeship models were prevalent for developing skills and gaining experience in various professions. However, the shift towards formal educational institutions has led to certain disadvantages. Apprenticeship models faced challenges due to the high cost of training individuals who might leave the company after acquiring skills. This, coupled with governmental regulations and rising minimum wage, significantly impacted the feasibility of maintaining traditional apprenticeships. Subsequently, educational institutions emerged to teach skills and knowledge previously acquired through apprenticeships. Nevertheless, the rise in tuition costs and the disconnect between education and practical skills led to a need for introspection in the current educational landscape. There is a growing need to reevaluate conventional education models in order to bridge the skills gap and align education with industry demands.
Austen Allred is the founder and CEO of the Bloom Institute of Technology (formerly known as Lambda School), a coding bootcamp that’s helped thousands of students get a job in tech.
The discussion kicks off with an exploration of Income Share Agreements (ISAs) and how BloomTech has used them as an alternative to student loans. Austen shares insights on the financial incentives and regulatory pressures that have prevented more schools from embracing ISAs, and how the current student loan regime works.
Auren and Austen dive deep on education and discuss different funding models at public and private universities, the decline of apprenticeship, and the structural factors that have caused the cost of education to skyrocket in the last few decades. Austen sheds light on questionable practices of for-profit colleges and the intriguing dynamics of universities acquiring coding bootcamps.
As the conversation unfolds, Austen shares insights on how being an investor makes him a better CEO and even delves into intriguing conspiracy theories. The episode wraps up with Austen debunking common management advice and offering unconventional perspectives on micromanagement and employee satisfaction.
