View all Articles
Commentary By Preston Cooper

Coding Bootcamps Don't Need Government Subsidies

Economics, Economics Employment, Tax & Budget

How do you know that an industry has gone mainstream? When the federal government wants to subsidize it.

Coding bootcamps are intensive courses in computer programming that span only a few months, making them a quicker alternative to a traditional college degree in computer science. Last week, the Obama administration announced a pilot program that would make a handful of these courses, along with other educational programs from nontraditional providers, eligible for federal student loans and Pell Grants. From among dozens of applicants, the pilot program, known as Educational Quality through Innovation Partnerships (EQUIP), selected four coding bootcamps and four other programs and granted access to $17 million in aid funds to educate 1,500 students.

Bootcamps have seen substantial growth just in the past year, with 6,700 graduates in 2014 and 16,100 in 2015—a 138% increase. According to a survey of bootcamp graduates by Course Report, a group that tracks the industry, 89% of students are placed in a job four months after graduation, with the vast majority of those jobs in a relevant field. Graduates saw an average boost to their salaries of $18,000, and low-income students saw double that.

Better data on the industry is needed, particularly regarding the non-completers who were not included in the survey, but these early results are promising. So promising, indeed, that the Obama administration wants to subsidize the industry through the federal student aid program.

The urge is understandable, even for free-market types who are generally more skeptical of subsidies. Currently, the higher education system operates as a cartel. Ninety percent of the student loan market is controlled by the federal government, and the only way to get access to this taxpayer largesse is through accreditation. I have written before that once institutions gain accreditation, it is very difficult to lose, no matter how poor a school’s quality is.

But barriers are high in the other direction, too—schools must be active for two years and pay costly inspection fees to gain accreditation. Additionally, many accreditors are run by established industry players with an interest in keeping out the competition. All this makes it difficult for newcomers to gain access to federal aid and play on a level field with the higher education industry’s dominant institutions.

Barriers to entry and barriers to exit mean that established schools face less competition than they would in a free market. This lack of market discipline allows quality to deteriorate and prices to soar. Permitting coding bootcamps and other nontraditional education providers to receive federal funding might be seen as a way to bust this cartel. It does not hurt that the Education Department has selected independent third parties instead of accreditors to ensure quality in the pilot program.

Compelling as this case is, though, it would ultimately do more harm than good to make coding bootcamps eligible for federal student aid. Integrating bootcamps into the established system might just saddle them with all the established system’s problems.

Take price, for instance. It is no secret that college costs have soared over the last several decades. Federal student aid contributes to higher costs, according to a paper by Stephanie Cellini of George Washington University and Claudia Goldin of Harvard University. Cellini and Goldin compared for-profit schools eligible for federal student aid to similar programs which did not receive aid. Programs at the eligible institutions were 78% more expensive than those at their ineligible counterparts. While coding bootcamps are not cheap, charging an average of $11,900 in tuition before scholarships, the findings of Cellini and Goldin suggest that figure would soar were bootcamps given access to taxpayer money.

Quality might also deteriorate. Unless the accreditation process underwent a major overhaul, a two-tiered market would emerge. Bootcamps with access to federal aid would enjoy a major advantage over those shut out. This would result in eligible institutions having less incentive to maintain quality. Cellini and Goldin’s research shows that the aid-ineligible institutions they studied had an 86% completion rate, compared to 35% for the aid-eligible ones.

As I have written, for-profit institutions with access to federal aid have an incentive to attract as many students as possible, regardless of those students’ prospects of completion. As a consequence, the reputation of for-profit colleges has tanked, and the Department of Education has embarked on a crusade to regulate them out of existence.

What if the same thing happens to coding bootcamps? Currently, most of those who enroll in the bootcamps expect to get a substantial return. But if the federal government introduces heavy subsidies, individuals will have less incentive to take account of their expected return, or even their likelihood of completion, before enrolling. Poor-quality providers will enter the market, seeking to take advantage of the subsidies.

Rather than looking to integrate coding bootcamps into the established student aid system, policymakers should simply leave the nascent sector alone. Allow it to develop in its own way and succeed on its own merits, rather than on the basis of Uncle Sam’s munificence. A private market for bootcamp finance is already developing: in 2015, 19% of bootcamp students took out an external loan, compared to just 3% in 2014. Competition is robust: at least 23 different lenders have provided financing to bootcamp students.

The government should not intervene in the bootcamp market, even with the intention of helping it prosper. Bootcamps have demonstrated that they can survive without federal assistance—indeed, they would probably be better off without it.

This column originally appeared on Forbes.

Preston Cooper is a policy analyst at the Manhattan Institute. You can follow him on Twitter here.

Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, E21 delivers a short email that includes E21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the E21 Morning Ebrief.