Report Finds Boot Camp Model Troubling

• By Dian Schaffhauser
• 02/12/20

An intensely researched study published on Class Central has dissected the economics of boot camps and found them to be poor venture capital investments — and possibly poor investments for their students too. Class Central is an online publication that monitors news and trends in online education.

The report by Christof Rindlisbacher particularly questioned the common use of ISAs — income share agreements. These are arrangements by which students pay no tuition to the boot camp until they're in a job that hits a particular income threshold. According to Rindlisbacher, ISAs "raise significant consumer protection and affordability issues," suggesting that in reality they could be either "a new type of financial product that requires a new legal framework" or "a new type of loan, in which case they would be subject to the Equal Credit Opportunity Act, the Truth in Lending act and state usury laws."

In part, Rindlisbacher's argument goes like this: Frequently, ISAs are sold by the boot camp to third-party investors, but without students' knowledge. That means that boot camp claims of earning money only when their graduates earn money isn't true. If it were, he pointed out, they'd keep the ISAs "on the books."

The same report offered a breakdown on the costs driving boot camps. The biggest expense: student recruitment, followed by staffing and curriculum development. Rindlisbacher described a "unit economic model" in which a 16-week boot camp operation could accommodate three cohorts of 20 students each per year. Of the average tuition ($11,900) each student pays, boot camps likely make a $1,042 first-year profit per each student ($62,520 for the year for the total 60 students, by his estimates) and a subsequent-year profit of $3,743 per student ($224,580 per year).

Rindlisbacher also questioned the claims boot camps make about student success. As he noted, aside from a one-time fine brought against Flatiron School by the New York Attorney General, "overall, there doesn't appear to be consequences for publishing misleading outcomes data." Many of the industry players have chosen self-regulation by participating in the Council on Integrity in Results Reporting (CIRR). Yet, he noted, they rarely follow its standards. As an example, CIRR standards require boot camps to submit student outcomes data twice a year. But as of Sept. 13, 2019, "of the 25 boot camps that have submitted outcomes reports to CIRR, 10 of these boot camps submitted reports for only one reporting period" — a form of "cherry-picking" that "calls into question the effectiveness of CIRR's reporting."

The author insisted that he didn't doubt the value of "short-term education" as a "worthwhile endeavor or a viable business idea." However, he added, the "available information" suggested that boot camps will struggle in their attempts "to be both profitable and to provide high quality education while growing at a rapid pace."

The full report is openly available on the Class Central website.