The hot Silicon Valley coding bootcamp Lambda School is paying a $75,000 fine for not registering properly with the state of California

Austen AllredAusten Allred, CEO and co-founder of Lambda SchoolLambda School

  • In July, the online coding bootcamp Lambda School received a citation from the California Bureau for Private Postsecondary Education (BPPE) for failure to properly register itself with authorities.
  • Lambda School has agreed to pay a $75,000 fine, and is in the process of properly registering itself.
  • Lambda School has an unusual business model: Tuition is generally free, but after the student gets a job in the tech industry, Lambda School takes a cut of their wages for the first two years. Normally, this wouldn't fall under the BPPE's jurisdiction, but it also allows students to pay a more traditional tuition.
  • Austen Allred, CEO and co-founder of Lambda School, says that this was a mistake on the company's part, and that it's more than willing to work with the BPPE and any other regulatory body.
  • With investors like Y Combinator, Ashton Kutcher, and GV (formerly Google Ventures), Lambda School has proven itself very popular with Silicon Valley investors - and other startups are taking inspiration from its business model.
  • Visit Business Insider's homepage for more stories.

The Lambda School, an online coding bootcamp with an unusual business model, has been fined $75,000 by the California Bureau for Private Postsecondary Education for not complying with state regulations.

In short: It didn't register with the bureau, which oversees the private higher education market in the state of California. Its mandate is to guard against so-called diploma mills - fradulent colleges and universities that award degrees to paying students, with little or no academic effort on their part.

"We're in close contact with BPPE and it should all be resolved pretty soon," Lambda School CEO and co-founder Austen Allred told Business Insider. He said that it's in the process of getting its registration in order, after first recieving the citation in July, and that it's agreed to pay the fine.

"Because we're talking with BPPE, it doesn't affect students at all," he said.

The Lambda School, which launched out of the Silicon Valley startup incubator Y Combinator and has raised over $48 million from investors including GV (formerly Google Ventures) and Ashton Kutcher, has won attention for how it charges students - or, more properly, for how it doesn't.

It's free for students, but after they find a tech job, Lambda takes a cut of their salary for two years. This income share agreement model that it pioneered has proven popular in Silicon Valley, with several new startups adapting it for their own businesses.

However, according to the citation, the issue is that Lambda School also offers the option for students to pay $20,000 for tuition, which, in the bureau's view, means that it should have registered with the BPPE.

The citation requires that Lambda School stop recruiting or enrolling students, disconnect its phone numbers, and cease instructional services and advertising. Allred says that since the school is now working with the BPPE, the order has been stayed while its application is pending.

"We're happy to be regulated," Allred said. "We're happy to work with regulators. We're not trying to be one of those companies that avoids regulation. It makes a lot of sense when schools are regulated when they charge tuition so we're happy to comply."

'I totally understand why it exists'

Allred says that Lambda School's previous counsel told him that it did not need to register with the BPPE, but this was a mistake. The Lambda School has recently hired a new general counsel.

"We were told it doesn't apply to us because we didn't have physical classrooms, and if we don't have physical classrooms, we don't need to register in California," Allred said.

Now that Lambda School is undergoing the registration process, Allred says he expects that it'll be about six months before it's all sorted. He says, again, that the company isn't eager to pick a fight with educational authorities over this matter, and that he respects the bureau's position.

Read more: This online coding school started in Silicon Valley's hottest startup incubator is completely free for students until they find a job

"I want to reiterate that as frustrating it can be for a young school to have to be registered in the state, I totally understand why it exists," Allred said. "Nobody at Lambda School is like, we should be able to run free and do what we want. It's difficult to comply with, but we're happy to do so."

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