A bootcamp's regulatory problems have quickly turned into business problems.
Prehired, a private software sales boot camp that drew attention for suing its own students to try to collect on defaulted income-share agreements, filed for Chapter 11 bankruptcy protection at the end of September. It's unable to pay debts it owes but is seeking a court-approved reorganization plan so it can continue to operate.
In court filings, the company said it has laid off 14 of the 16 staff members it employed in March of 2022. As a result of investigatory actions by more than dozen states, the company has been unable to enroll new students or collect on defaulted income-share agreements, affecting its ability to continue operations.
The consequences for Prehired may reflect growing difficulty of operation for private boot camps, especially those that use income-share agreements, lending contracts that require students to pay back a set portion of their incomes. More attorneys general and regulators are paying closer attention to the industry.
Ben Kaufman, director of research and investigations at the Student Borrower Protection Center — which has criticized income-share agreements and boot camps — said the ISA market is rife with the type of conduct that led state investigators to look into Prehired.
“From what we see every day in dealing with the outcomes boot camps produce for people, the kind of conduct outlined in the bankruptcy filing appears in fact to be pretty common among the boot camps in the ISA space,” he said. “What makes the Prehired situation unique in my mind is that it actually drew the attention of law enforcement.”
Had the company not drawn attention to itself by suing its students, it may not have faced legal action, Kaufman said.
Both bootcamp and ISA provider?
Launched in 2017, Prehired advertised to students that they would make an average of $69,000 in their first year after taking its program and be guaranteed jobs. In May 2019, the company began offering ISAs, wherein students pay a percentage of their income for a set number of years in exchange for money they put toward college or training programs.
Prehired ISA terms at one point required students to pay 12.5% of their gross income for 48 months after reaching an earnings threshold. Total payments were capped at $30,000 for a class lasting between six and 12 weeks..
Prehired previously said that the ISA structure allowed the institution’s incentives to be aligned with the students’.
“If you follow the process and don’t land a software sales job, you never owe us a penny. We only earn money when you do,” a 2020 post on the company’s website stated. “Simply put: if you get accepted into Prehired, our incentives are aligned.”
But bankruptcy documents say the company sold most of its ISAs to ISA funding companies that had full control over terms and conditions. Prehired initially filed for bankruptcy protection in New York, but Delaware has since motioned to move the case to the federal bankruptcy court covering that state.
Kaufman said that other for-profit boot camps, such as Lambda School, have also sold ISAs after telling their students that the boot camp doesn't make money until their students succeed.
“Everyone deserves an explanation for why these boot camp people are first able to get funding so easily and so easily able to start indebting people to the tune of tens of thousands of dollars with the lenders providing no due diligence," he said. He also asked how organizations can claim to share students' interests when selling ISAs to investors means their interests might not align.
Students' ISA contracts have the potential to generate a substantial amount of cash for a small provider like Prehired. At one point, it sold 100 ISAs for a total of $1 million, court documents say. For comparison, the boot camp's gross revenue in 2021 was only $3.2 million.
Students and regulators object
Student reports collected by the Student Borrower Protection Center allege poor educational offerings and empty promises at the company. Some students say they have not landed any sales jobs and exhausted their savings.
In September 2021, company leaders set up another limited liability company, called Prehired Accelerator, to hold defaulted ISAs and collect on them. Over five weeks in early 2022, Prehired filed 289 lawsuits in a Delaware court against defaulted borrowers to try to collect on the agreements.
In March of 2022, the Delaware Consumer Protection Unit, part of the state attorney general's office, told the court it was investigating Prehired. Prehired dropped the lawsuits,
Company officials at first planned to collect on the ISAs through arbitration and courts in other states. However, the Delaware Consumer Protection Unit suggested Prehired had violated the state consumer law and told the company it would have to cease collection on all defaulted ISAs, regardless of jurisdiction. It also told the boot camp to stop new enrollment.
The Delaware regulator notified attorneys general and regulatory offices in other states about its investigation into Prehired, the boot camp alleged in court documents. In June, Washington state's attorney general sued Prehired, alleging that the company misled students and operated as a private vocational school without a license.
In the months that followed, Prehired received subpoenas and civil investigative demands from states including Arkansas, California, Colorado, Delaware, Illinois, Indiana, Iowa, Ohio, Massachusetts, Minnesota, North Carolina, New York, Pennsylvania, South Carolina, Virginia, Washington, and Wisconsin. The company asked the states to consolidate their requests, saying they were burdensome, but the states said that was not possible. The company was also hit by several private lawsuits.
The company maintains in court filings that it has helped to boost the incomes of those who took part in its training.
"Prehired rejects any notion that its program is fraudulent and misled consumers," CEO Joshua Jordan said in a declaration to the bankruptcy court. "Indeed, even before Prehired knew of the investigations against it, Prehired had released hundreds of members from having to pay their ISA commitments in response to their adverse personal circumstances; this decision not to enforce the ISA payments resulted in Prehired forgoing approximately $12,000,000.00 in income that it otherwise would have been entitled to."
Being unable to enroll new students or collect on defaulted ISAs has affected the company’s business, according to court documents. Prehired has moved to restructure the company and discontinue the use of ISAs. It will be attempting to collect on ISAs through lawsuits in borrowers’ respective state courts.
In its filing seeking bankruptcy protection, Prehired estimated assets worth between $1 million and $10 million, with liabilities in the same range. It estimated it has between 1,000 and 5,000 creditors.
“I don’t have a good answer for why the dream of venture-funded vocational training with venture-funded ISA backing failed,” Kaufman said, “but it is already failing.”