When Faith Chikwekwe decided to make a career switch into programming in 2018, the last thing she expected was to pay $30,000 for one year of schooling.
Chikwekwe and nearly 50 other former students of the Make School coding academy filed a lawsuit alleging that the for-profit school misrepresented income-share agreements (ISAs) used to finance the educational programs.
"Students weren't told the actual long-term cost of Make School's ISA program," Melody Sequoia, an attorney with Sequoia Law Firm, who is representing the students, told Yahoo Finance.
Students attending the San Francisco-based online school from 2016 to 2018 took out ISAs from Make School and ISA provider Vemo Education. The ISAs involved Make School and Vemo providing funding to cover the cost of attendance in exchange for students paying a portion of their post-graduation salary.
The lawsuit alleges that these agreements were "predatory, risky, and exorbitantly expensive."
“The Income Share Agreements pushed by Make School and Vemo were sold as shiny new financial innovations but, as today’s lawsuit makes clear, they were nothing more than plain old predatory lending,” Mike Pierce, managing counsel for the Student Borrower Protection Center and a former Consumer Financial Protection Bureau official, told Yahoo Finance in a statement. “Students, schools, and honest lenders all suffer when firms like Vemo and Make School defraud and cheat students just to pad their profits — these abuses must stop and these students deserve justice.”
Chikwekwe, who signed three separate contracts that led to her owing $30,000 despite leaving the program early, noted that the school "estimated over $100,000 in payback for my August 2018 to June 2019 time at Make School." Repayment involved monthly payments of $2,500 after graduation were she to find a job, and the amount of income sharing depended on a borrower's salary.
"The school and Vemo marketed ISAs to be superior to traditional loans," Sequoia said. "The school also made false statements about the actual cost. Students were never told at the beginning when they signed up, that if they fully financed the program through ISAs… their total potential liability could be... something like a quarter of a million dollars."
By claiming that the school's financial interests aligned with the students in that they only made money when the student made money, the lawsuit argues, the school "misrepresented and concealed the true nature of its financial interests" since Make School was actually incentivized to "sign as many students up for ISAs as possible so that it could package and sell those ISAs to investors and take out loans secured by the ISAs in order to fund operations."
The former students are asking for a preliminary and permanent injunction "restraining and enjoining" anyone collecting on the ISAs in addition to refunds for those who had already paid off the de facto loans.
"Vemo has long advocated for strong protections for student consumers and a legal framework to establish guardrails for institutions and providers," a Vemo spokesperson said in a statement. "We are committed to ensuring that all students have the most transparent and reliable information on ways to finance their postsecondary education pathway. Vemo can’t comment on pending litigation at this time."
Make School Founder Jeremy Rossmann told Yahoo Finance that "the entity being sued, Make School PBC, is in the process of shutting down. The school is now being operated by a separate non-profit that is not being sued and has never issued nor ever owned an ISA."
Rossmann stressed that "it’s not ‘the school’ being sued since ‘the school’ is now fully operated by an entity that isn’t being sued. It’s basically the financing arm of the school that is being sued and that financing arm has started an insolvency proceeding similar to bankruptcy."
Problems with accreditation and approval
Make School, founded in 2012, morphed from a bootcamp to an accredited two-year bachelor's degree-granting institution in 2018. (The school offers the degree in partnership with Dominican University.)
According to the school's website, a two-year degree on-campus will cost around $70,000 while students taking the courses online pay around $65,000.
When it was still a bootcamp that Chikwekwe attended, the school's ISAs required students to repay 20 to 25% of their pre-tax income every month for three and a half years or more.
"You attended the school, they pay for your living, they pay for the tuition and then you pay them back afterwards and that to me sounded pretty awesome," Chikwekwe said, adding that she was also attracted to how the school presented itself. "The website was extremely diverse — I wasn't used to seeing [Computer Science] programs that advertised with people who look like me, ... especially Black women."
At the same time, however, the school was unaccredited and unapproved: In 2016, the California Bureau for Private Postsecondary Education informed Make School that it was violating state law by operating without the agency's approval.
The agency initially fined the school $100,000 and demanded that Make School cease operations in California. In July 2018, the fine was reduced to $25,000 after the school received approval to operate as a non-accredited institution. (A few months later, the school was accredited by the Western Association of Schools and Colleges through the Dominican University partnership.)
The lawsuit argues that "any agreement entered into prior to" the school becoming approved by regulators "is void and unenforceable."
Chikwekwe stressed that while she had a good experience with instruction at the school itself, the financial contracts led her to withdraw after one year at the school.
"Not every ISA is predatory," she said, "it's just that there's an overwhelming temptation from these schools to get to this place that's predatory."
Aarthi is a reporter for Yahoo Finance covering student debt and higher education. If you are on an income share agreement for your bachelor’s or master’s degree and would like to talk about your experience, reach out to her at firstname.lastname@example.org.