New Lender for a New Market

Skills Fund wants to be both a private lender and new form of accreditor for the rapidly expanding boot camp sector, with a heavy focus on students' return on investment.

October 21, 2015
 

A new company is seeking to be both a private lender and an alternative accreditor for the fast-growing boot camp sector.

The Texas-based Skills Fund is up and running with financial backing from Iowa Student Loan, a nonprofit loan guarantor with deep pockets. Skills Fund will use $11.5 million in seed capital to issue loans to students who attend boot camps that have successfully completed the company’s quality-assurance process.

Skills Fund has kicked the tires of at least six boot-camp providers that have earned its approval, said Rick O’Donnell, the company’s founder and CEO.

Qualifying boot camps include those offered by Dev Bootcamp and Galvanize, he said. General Assembly, by far the biggest player among the boot camps, is also in talks with the company. Two other providers he declined to name did not meet Skills Fund’s standards and their students will not be eligible for loans.

The criteria Skills Fund uses to evaluate boot camps include standbys of traditional accreditation, such as scrutinizing the quality of instruction, reviewing curricula and determining whether a provider holds the necessary licensing and regulatory approval.

But O’Donnell said the company goes much farther than accreditors do by pushing hard on whether students are getting a return on their investment. Skills Fund wants to know if a boot camps’ graduates get good-paying jobs, quickly. It will also collect and verify program completion and job placement rates.

“We don’t finance students to attend crappy programs,” the company says on its website.

Several experts said Skills Fund’s approach to quality assurance appears promising.

“That is the kind of underwriting of institutions (not just students) that is largely lacking in the existing system,” Andrew Kelly, director of the American Enterprise Institute’s Center on Higher Education Reform, said in an email. “It seems plausible that eligibility for Skills Fund money will send a signal to students about quality and help push them toward schools that meet their standards.”

The new private lender is worth watching, said Bob Shireman, a senior fellow at the Century Foundation and a former official at the U.S. Education Department. He said how the company determines the value of a boot camp for an individual student, its approach and whether it works, could “provide lessons for current discussions about quality oversight and risk sharing in federal financial aid programs.”

However, Shireman said, students should be cautious about taking out private loans for job training.

“A better approach would include employers as part of the equation, involving them in helping to reduce the risks to the students,” he said in an email.

Liz Simon, vice president of legal and external affairs at General Assembly, said she does not know much about Skills Fund's quality-control process. But she said General Assembly is excited about the increasing sophistication of private lenders in the boot camp space.

"We believe that taking the quality of the program, rather than just borrower characteristics, into account is a good thing and holds potential to expand access to high-quality programs," she said in an email.

Private Money, Private Sector

Boot camps aren’t cheap, with an average of $11,000 in fees for 11 weeks of training, according to Course Report. Skills Fund will make loans that will cover those fees, as well as the total cost of attendance, through a housing stipend.

“We do our own quality assurance, underwriting accelerated learning programs to ensure they are high quality with strong outcomes,” Skills Fund’s website says. “Unlike traditional college-accrediting agencies that suffer no consequences if students default on loans taken out from a school deemed quality, if we get it wrong, we lose money.”

The company will design custom financing programs for each of its partner boot camps. Options for students will include 36- and 60-month loans, interest-only or fully deferred payments while attending the boot camp, cost of attendance stipends, and other factors, said Lauren Bauml, a spokeswoman for Skills Fund.

“We believe it is important for students to know before they apply for a loan exactly what their financing options and costs will be,” she said. “Thus once a boot camp determines which options best suit their students, all of their students are offered the same interest rates and terms.”

Roughly 16,000 students will complete a coding or skills boot camp this year, Course Report estimates. The sector is enjoying a broad range of political support, in part because boot camps chip away at what many policy makers feel are traditional higher education’s failings in job training and closing the skills gap.

Boot camp students, however, typically are bachelor’s degree holders who have enough money to drop five figures for a few months in a classroom. In that way, the programs are much more like specialized and shorter-term graduate programs than they are a replacement or competitor for undergraduate programs.

In an attempt to open up access to more low-income students, the Education Department last week announced an experimental pathway to federal financial aid for boot camps that partner with accredited colleges. Boot camps and colleges must also bring along an alternative form of accreditor, dubbed a quality assurance entity, to participate in the project.

Skills Fund is attacking the access issue from a different angle -- with an approach solely located in the private sector.

The lender is not federally backed and Skills Fund isn’t seeking to be recognized as an accreditor by the Education Department.

“We don’t want to be a gatekeeper to Title IV,” said O’Donnell. “The federal student loan programs are a disaster.”

Kelly said private lenders could expand access to successful innovations that exist outside of federal aid programs, including boot camps.

“In theory, private lenders or investors would have incentive to underwrite on the basis of program quality and expected student outcomes in a way that the feds cannot (or are unwilling to because of political constraints),” he said.

O’Donnell knows a bit about accreditation. He serves on the board of the federal committee that oversees accrediting agencies. Previously he was secretary of higher education in Colorado, where he helped privatize the state’s student loan business.

Accreditors are getting plenty of criticism of late. Senator Marco Rubio, the Florida Republican who is running for president, called the accreditation system a “cartel.” And the White House this week said it would use executive action and legislative proposals to push accreditors to be more focused on student outcomes.

Skills Fund, with its focus on employment and graduation rates, seems to be the sort of review process Rubio and President Obama would like. But that’s irrelevant, because the company isn’t particularly interested in Washington.

“We don’t have to be beholden to what the policy makers think accreditation should be,” O’Donnell said.

Alexander Holt, a policy analyst for New America’s education policy program, said Skills Fund appears to have the right incentives by using private money in a private arena. (He is concerned that the company will allow co-signers on loans, however.) That stands in stark contrast to the feds’ experiment with boot camps, which Holt has criticized as a bad idea that will likely suck the innovation out of the sector.

“What if the private market could do accreditation better?” Holt said.

Read more by

Back to Top