Dive Brief:
- A former student of California-based Bloom Institute of Technology, a for-profit coding academy formerly known as Lambda School, is suing the institution, alleging that its officials misled her about job placement rates.
- Emily Bruner, the plaintiff, is asking a state judge to cancel her income-share agreement, or ISA, with the school. Under ISAs, students have their tuition and fees covered up front but agree to pay back a percentage of their income over a set timeframe once they complete their programs.
- The lawsuit accuses BloomTech of violating several California state laws, as well as intentionally making misrepresentations. The institution has been dogged by allegations in recent years that it doesn't deliver a quality education or job placements that it promises.
Dive Insight:
BloomTech bills itself as an alternative education provider where students can quickly learn coding skills without paying upfront. The school offers an ISA, which currently takes 14% of graduates' income over four years once they find a job that pays $50,000 or more per year, according to its website. The lawsuit says most of the school's students opted for the ISA option when Bruner attended.
However, BloomTech does not offer ISAs to California residents, according to its website. The school's CEO, Austen Allred, said in a 2020 blog post that the company hopes to persuade state regulators to offer the financing option to Californians.
The lawsuit could shed light on how BloomTech uses ISAs, which are under the microscope by policymakers at the state and federal level. Although they have frequently been cast as less risky than taking out traditional student loans, the Consumer Financial Protection Bureau recently said that laws and regulations concerning private loans apply to ISAs as well. And critics of ISAs say they can be predatory and end up costing graduates unfair sums.
The coding school also allows students to pay about $22,000 up front or take out a loan to cover their educational expenses, which is refunded if a student doesn't secure a job within a year that pays at least $50,000 annually.
While the coding school has attracted buzz — and garnered tens of millions from investors — it has faced several allegations it inflates job placement rates and misrepresents how its financing options work. Amid the controversy, the institution rebranded from Lambda School to BloomTech in late 2021. The move also came after the coding school settled a trademark lawsuit with artificial intelligence company Lambda Labs.
Bruner alleges that she signed an ISA with Lambda School under false pretenses. In the lawsuit, she says she enrolled in Lambda's online coding programs because of high job placement rates advertised on its website, in marketing materials and on Allred’s personal Twitter account.
In 2019, the year Bruner was considering enrolling, Lambda advertised a job placement rate of over 80%. But in May of that year, Lambda sent a note to an investor that said it had only a 50% job placement rate for cohorts that graduated within the last six months, according to court documents.
The lawsuit also points to exaggerated claims on Allred's Twitter account. In November 2019, for instance, he posted that Lambda's "first track" had graduated and hit a 100% placement rate, though it was based on a "VERY small sample size." The Verge later reported the sample consisted of one student.
The complaint argues that the judge should void Burner's ISA because she entered into the agreement during a period when Lambda wasn't authorized to operate in California. In March 2019, California's Bureau of Private Postsecondary Education, or BPPE, fined BloomTech $75,000 and told it to stop operating in the state, as it was doing so without the agency's approval.
But Lambda ignored the order and continued operating while seeking approval from BPPE. After denying it several times, the agency granted approval for the school to operate — effective August 2020, after Bruner had signed the ISA contract.
California bars private postsecondary institutions from operating in the state without BPPE approval. Because Lambda flouted those requirements, Bruner's ISA isn't enforceable, the lawsuit argues.
“I feel like Lambda misled me and my classmates at every turn — about their job placement rates and about how they would prepare us for jobs in the field. I was even more shocked when I found out they were operating illegally,” Bruner said in a statement. “I took time away from my young son and other career opportunities to participate in a program based on lies."
A BloomTech representative and Allred did not immediately respond to a request for comment Monday.
