The Lambda School, an online coding bootcamp with an unusual business model, has been fined $75,000 by the California Bureau for Private Postsecondary Education for not complying with state regulations.
In short: It didn't register with the bureau, which is under the Department of Consumer Affairs and oversees the private higher education market in the state of California. Its mandate is to guard against so-called diploma mills — fraudulent colleges and universities that award degrees to paying students, with little or no academic effort on their part.
"We're in close contact with BPPE and it should all be resolved pretty soon," Lambda School CEO and co-founder Austen Allred told Business Insider. He said that it's in the process of getting its registration in order and that it's agreed to pay the fine after receiving the citation in July,
"Because we're talking with BPPE, it doesn't affect students at all," he said.
The Lambda School, which launched out of the Silicon Valley startup incubator Y Combinator and has raised over $48 million from investors including GV (formerly Google Ventures) and Ashton Kutcher, has won attention for how it charges students – or, more properly, for how it doesn't.
It's free for students, but after they find a tech job, Lambda takes a cut of their salary for two years. This income share agreement model that it pioneered has proven popular in Silicon Valley, with several new startups adapting it for their own businesses.
However, according to the citation, the issue is that Lambda School also offers the option for students to pay $20,000 for tuition, which, in the bureau's view, means that it should have registered with the BPPE.
The citation requires that Lambda School stop recruiting or enrolling students, disconnect its phone numbers, and cease instructional services and advertising. Allred says that since the school is now working with the BPPE, the order has been stayed while its application is pending.
"We're happy to be regulated," Allred said. "We're happy to work with regulators. We're not trying to be one of those companies that avoids regulation. It makes a lot of sense when schools are regulated when they charge tuition so we're happy to comply."
'I totally understand why it exists'
Allred says that Lambda School's previous counsel told him that it did not need to register with the BPPE, but this was a mistake. The Lambda School has recently hired a new general counsel.
"We were told it doesn't apply to us because we didn't have physical classrooms, and if we don't have physical classrooms, we don't need to register in California," Allred said.
Matt Woodcheke, public information officer with California's Department of Consumer Affairs, confirmed that Lambda School's application is now under review, and he said that the review process involves looking at the quality of education being provided, as well as the finances of the school to make sure it's in a "stable operating position."
Now that Lambda School is undergoing the registration process, Allred says he expects that the entire process will take about six months before it's all sorted. He says, again, that the company isn't eager to pick a fight with educational authorities over this matter, and that he respects the bureau's position.
"I want to reiterate that as frustrating it can be for a young school to have to be registered in the state, I totally understand why it exists," Allred said. "Nobody at Lambda School is like, we should be able to run free and do what we want. It's difficult to comply with, but we're happy to do so."
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