Affirm, the lending startup co-founded by Max Levchin, is breaking into student loans for coding, design and business bootcamps from General Assembly, Bloc, Kaplan’s Dev Bootcamp and Metis. The company, which raised $275 million this past spring, is branching out from its initial market in online retail. They were originally financing purchases at the point-of-sale online with e-commerce companies like mattress retailer Casper.
Now they’re partnering with these bootcamps to offer 12, 15 or 18-month loans with interest rates that range from 6 to 20 percent. Students don’t need to start repayment until six months after they take the loan out so they can take courses and look for jobs. Affirm’s model, which can offer loans quickly based off a borrower’s name, phone number, birthday and the last four digits of their social security number.
“There’s this desire to improve your social standing. But the living wages in this country have been flat and access to credit is one way to improve your quality of life,” Levchin said. “You can argue about the consumption side of debt, but one thing that you can borrow for to improve your standing is education. It is the best kind of debt. It’s the most righteous reason to borrow money.”
Coding bootcamps, or these short 10-week to several month long courses in software development, have blown up over the last few years. Total course revenue for these camps may ramp up to north of $170 million this year with more than 16,000 students, according to Course Report. Their average cost is around $9,900, but that can rise to nearly $20,000 for some of the more expensive providers.
Coding bootcamps, unlike four-year universities, aren’t eligible for federally-backed student loans so an entire cottage industry of lenders like UpStart and Pave have emerged around them.
At the same time, there’s no industry-wide, third-party accreditation or ranking system for these coding schools and most of them self-publish their own placement rates. Some like New York’s Flatiron School have hired external accountants to audit their own job salary and placement rates.
“We’ve partnered where we thought the quality of education was so high that you’ll be able to graduate with a few job offers on hand,” Levchin said.
He also disputed the idea that loans for coding bootcamp loans might fuel an already rapidly growing student lending bubble. Student debt is the one major kind of household debt beyond mortgages and auto loans that hasn’t decreased since the de-leveraging after the Great Recession. A New York Federal Reserve Bank report published earlier this month also argued that 65 cents on the dollar of exposure to subsidized federal student loans merely gets passed on into higher tuition at educational institutions.
“It’s a little bit outside of what we’re doing, but it’s something I’m trying to wrap my head around,” Levchin said. “If you look at the default rates for some of these schools, they’re unbelievably high. Then of course, these loans are essentially guaranteed by the government. It’s a giant vortex of cash into the ground.”