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    Is BloomTech’s Downfall a Necessary Condition of Startup Culture?

    Business 5 Mins Read

    First appeared in Florida Daily

    By Aron Solomon

    A class-action lawsuit has been filed against Bloom Institute of Technology, formerly known as Lambda School, by four of its students.

    BloomTech is a tech education company that was founded in 2017 by Austen Allred and Ben Nelson. The company started as a coding bootcamp, offering online courses in software development, web development, and data science.

    The original business model of Lambda School was to offer students a free education and take a percentage of their income once they found a job in the tech industry. This model was seen as disruptive and innovative and attracted a lot of attention from both investors and “students” who saw Lambda as a somewhat direct path to entrepreneurial success.

    However, in 2020, Lambda School rebranded as BloomTech and changed its business model. They stopped offering free education and instead began charging tuition upfront. They also expanded their course offerings beyond tech to include healthcare and design.

    BloomTech offers students the option to pay upfront tuition or pay back their tuition through an income-share agreement. According to this agreement, when a student secures a job paying $50,000 or more, they must pay back 14% of their income for four years or until they reach a cap of $40,000.

    The National Student Legal Defense Network and co-counsel Miner, Barnhill & Galland and Cotchett, Pitre & McCarthy, filed the suit on behalf of the students, all of whom attended between March 2020 and March 2023. The claim alleges that the students were misled by inaccurate information on the school’s website and CEO Austen Allred’s Twitter account about job placement rates. In addition, they claim that BloomTech conducted unlicensed lending and operated without authorization from the state of California until August 2020.

    These students are seeking fair compensation, including the cancellation of their income-share agreements or refunds.

    Former BloomTech students have expressed dissatisfaction with the school’s performance, citing underqualified instructors and a lacking curriculum. Documents leaked last year, when BloomTech fired half their staff, reveal that the school’s job placement rates were not as high as advertised.

    Fort Lauderdale attorney John Lawlor weighed in on the matter.

    “While income-share agreements have gained popularity in coding boot camps, allowing students to avoid paying tuition upfront, they also pose risks due to the lack of clear regulations under federal laws that primarily address consumer loans,” Lawlor pointed out.

    As the New York Times reported last year, the Biden administration announced a comprehensive settlement that will cancel federal loans worth $6 billion for around 200,000 ex-students who claim that they were defrauded by their schools. This measure is the latest attempt to tackle the student loan crisis by easing the burden of some debts. If applicants attended one of the over 150 schools mentioned in the class-action settlement, their loans will be discharged, even if they had applied for relief as far back as seven years ago.

    Those who look at the history of Lambda/Bloom and would choose to argue that students should have been far more careful before paying this provider for any “education” are missing two critical arguments.

    The first is that the very existence of Lambda/Bloom and the public persona of its founder is something of our own creation. It is absolutely no surprise to those of us who closely followed Lambda that it imploded. It was, from day one, a fiction, a creation of the startup world.

    The pay-us-later narrative was spun as a vote of confidence in students’ eventual success. The legal process is on track to reveal that it was all a numbers game, profiting from the omnipresent reality that startup life isn’t for everyone and that the startup game of snakes and ladders has a lot more of the former.

    The second and more important legal prong here is the troubling legal nature of the allegations themselves, which extend far beyond BloomTech simply not providing a solid educational foundation.

    BloomTech is alleged to have engaged in unlicensed lending, operating without California state approval until August 2020, and operating as an unlicensed college for several years. The school has also been accused of misrepresenting work placement rates and earnings for graduates of the program, as well as engaging in illegal lending, which may, looking at this through a legal lens, be a powerful final straw.

    No matter how this plays out in court, this is a lawsuit a lot of people have been hoping for for a very long time. For those who filed the suit, it’s one more example of a trap endemic to startup culture. Lambda School always appeared to be a get-rich-quick scheme for the founder wrapped in a package far too tempting for other founders to resist – now it might be legally proven to have been exactly that.

    About Aron Solomon

    A Pulitzer Prize-nominated writer, Aron Solomon, JD, is the Chief Legal Analyst for Esquire Digital and the Editor-in-Chief for Today’s Esquire. He has taught entrepreneurship at McGill University and the University of Pennsylvania, and was elected to Fastcase 50, recognizing the top 50 legal innovators in the world. Aron has been featured in Forbes, CBS News, CNBC, USA Today, ESPN, TechCrunch, The Hill, BuzzFeed, Fortune, Venture Beat, The Independent, Fortune China, Yahoo!, ABA Journal, Law.com, The Boston Globe, YouTube, NewsBreak, and many other leading publications.

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