Skills Fund Aims to Be Accreditor, and Creditor for Coding Schools

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the school’s completion rate, dropout rate, graduation rate, how long it takes students to find a job after graduating, the salary of those jobs compared to other salaries in the local area, and whether the school is teaching skills for jobs in high demand, among others. Other qualitative measures, such as who the instructors are and their pedigree, are factors too, he says.

There are two base loan products that approved schools can offer their students: a three-year loan with an interest rate of about 8 percent, and a five-year loan with a rate of about 10 percent. Then, Skills Fund works with each school to create customized options depending on the needs of its student body, such as the possibility of making interest-only payments for a period after graduation or larger loan amounts to cover housing costs, O’Donnell says.

“If I was borrowing money, what would I want to experience? That’s what we’ve tried to build,” he says.

While building something based on what people want is a good measure for success, O’Donnell also has plenty of experience in both the financial and education markets to add credibility. Before O’Donnell moved to Austin to run the Acton Foundation for Entrepreneurial Excellence, a program that offers an MBA in entrepreneurship, he was the head of all consumer protection agencies in Colorado, as well as the secretary of higher education in the state.

The two-pronged idea of the Skills Fund making loans and performing background research about bootcamps came about while O’Donnell was working for another bootcamp, Cambridge, MA-based The Fullbridge Program. At Fullbridge, which O’Donnell came to after it acquired a business he ran, he was trying to develop a lending tool to help students, who might take a leave of absence from their job, pay for tuition for the business-skills building bootcamp.

While working on it, O’Donnell realized that there was a related factor that often was unanswered, but played a large role in these bootcamps: If students are going to take loans out to pay for these programs, how do they know the programs are good?

With Skills Fund, O’Donnell has developed a company that does work similar to college or university accreditors. Skills Fund takes no money from the schools, though, instead earning its revenue from the interest that students pay.

Skills Fund does not reap all 8 to 10 percent of annual interest. It will get investors in from the capital markets, such as private equity firms or hedge funds who are seeking higher returns from relatively safe investments, to provide the money to make most loans. (O’Donnell declined to name the exact type of investor he works with.) Skills Fund’s banking partner is SouthEast Bank of Tennessee, he says.

Skills Fund obviously has a bevy of competitors in the fast-rising, hot fintech lending market. Earnest offers refinancing of student loans, and there are many more generalist lenders such as Affirm or Fundbox. O’Donnell says those lenders aren’t competing with him in the coding space, and instead are trying to replace larger banks.

“They’re different than creating a bespoke lender to serve the needs of a very specific and an important, emerging education sector,” he says.

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David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at dholley@xconomy.com Follow @xconholley

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