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"I'm nervous." Speaking via Zoom from his in-laws' farm in Utah, Austen Allred, the founder and CEO of the remote education startup Lambda School, certainly looks concerned. This COVID-19 crisis could be Lambda's moment, a huge opportunity to prove that digital training can really work — but Allred senses a problem.
"I'm nervous about the perception of online education being harmed because people aren't doing it right," he says. "I don't think you can just copy-paste what happens in the physical classroom online and have it be a good experience." His daughter has just started having preschool sessions via Zoom, he says, and "it doesn't take a genius to know that's not going to work very well."
Harnessing all the advantages of remote learning, like collecting real-time data and adapting tuition accordingly, isn't straightforward. Lambda, which offers courses in data science and software development, started out online with a team of engineers to make its remote teaching work as smoothly as possible, and even Allred admits that it took "a long time" to figure out how to do it well. "I'm not confident at all in the average school moving online and being able to do that," he said.
Caught in the crossfire
His fear for the coming weeks and months: That schools and colleges put their classes and lectures online, charge tens of thousands of dollars in tuition — and then don't follow through on providing the standard of education that they promised. If that happens, Allred worries that people will think it's the offline experiences, not the notes and lectures, that make school work well. "I do worry about getting caught in the crossfire of that," he says.
That would add to an already stressful year for Allred. In February, Lambda faced a whirlwind of negative press attention: The Verge reported on unsatisfied students, while Intelligencer's Vincent Woo deemed its hiring success figures "misleading, if not downright fraudulent." In the aftermath, Lambda explained its financing, published new hiring stats, and most recently laid off 19 people in what Allred described at the time as a decision to "focus on quality and student experience."
The changes had nothing to do with the media reports, Allred says. "I know the experiences students are having way more than any reporter would ever be able to ascertain, so I don't need to, kind of, outsource my thinking to reporters," he adds, calling that period in February "frustrating" and arguing that the changes would have happened regardless.
"In the past we tried to be too much to too many people," he says. "We had investment offers, we had people that were saying go go go, let's grow this thing. And it really came down to me, at the end of the day, talking to our instructors, talking to our employees, and people saying: You know if we push this too far, we could break everything."
Now, Lambda is trying to do fewer things, but do them better. That includes winding down its Africa pilot and reducing the number of courses on offer in order to focus on quality. "For the next, you know, six to nine months, that's going to be the reality," Allred said.
But that pivot comes as Lambda's business outlook becomes even more uncertain.
High demand, falling income
On the one hand, the pandemic could be good for the company. One of Lambda's big draws, perhaps now more than ever, is that it allows students to opt-out of upfront payments for tuition, and its income share agreements mean repayments are only ever due once a graduate's income rises above a certain threshold. Allred says that people are "looking to retrain and short on cash, simultaneously." In the first quarter of 2020, Lambda says it received over 30,000 applications — already a dramatic jump from the total of 60,000 it received in the whole of 2019, and a figure that the company attributes at least partly to the COVID-19 crisis.
But high unemployment could also pose an existential threat. "We live and die by alumni repayment," Allred says — and unemployed graduates could lead to a big revenue shortfall. Some of Lambda's former students have already been affected by layoffs, he says, although "it's been less than 2%." Real trouble won't hit Lambda until national unemployment hits 50%, Allred thinks — "but frankly, if unemployment is 50%, then we all have way bigger problems than Lambda School," he says.
For now, Allred's at peace with the hit. "The alternative is that we're not affected by unemployment, or by students being hurt, and that feels wrong to me," he says. "We knowingly tied our incentives to the incentives of the students, and we're happy to take the lumps when they come."
And Lambda has prepared for those lumps. "We've planned for and built for scenarios like this … we've built really conservative models," he says. And in response to the current crisis, it has a team that is helping laid-off graduates find new roles, as well as helping new graduates find the companies that are still hiring. "We're placing a lot of students in health care companies, in logistics companies, in financial services companies," Allred says.
But, he concedes, "we have to be really, really smart with our money right now … we're watching every penny."
Based on Lambda's financing arrangement, that's prudent. Lambda's ISAs are financed by external investors, which pay Lambda an advance to cover some of the tuition costs. Students' ISA payments go first to investors, who are reportedly offered a 13% return, with any residual income split between Lambda and the investors. That means investors aren't too phased by the unemployment stats, Allred says, because "Lambda is taking on so much of the risk." He goes a step further: "I'm not worried about the investors. OK, I mean, I am, I am — I shouldn't say that. We need all constituents to be happy, but we've built conservative models that will allow that to continue to be true."
But while he is fairly confident about the long-term success of the company, he's less optimistic about what happens between now and then. "Frankly, we've seen a ton of students apply to Lambda School who are planning on either taking a gap year, or not going back to university," Allred says. And more generally, the crisis will "force a reckoning" across education, he thinks, with universities' financial woes potentially leading to some permanent closures.
"I think the unfortunate reality is just that there's going to be a lot of pain, even if Lambda School survives," he says. "It's just not going to be fun."
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