Jail or Cheiron's Academy
Iolaus used to be a thief, until he was caught. He was offered a choice: Jail or Cheiron's Academy. Iolaus often struggles to make enough money for tuition and get passing grades to avoid having to go to jail.
Although not explicitly stated, it's assumed that the prank Iolaus pulled with the pig's bladder in (Movie Pilot) is the act that got him in this situation. Although not shown in the movie, in the Movie Novelization Iolaus is caught shortly after the twister explodes in the marketplace.
1.02 - Between Friends
Nysus/Strife: From me? Iolaus, everybody knows I don't have that kind of money.
1.04 - Herc and Seek
Iolaus: Ah, they couldn't prove anything.
1.06 - Teacher's Pests
Jason: Are you crazy?
Hercules: You get caught, and you'll get kicked out of school.
Iolaus: Well, if Kora fires me, I can't pay my tuition anyway. The thing is - I need you guys to cover for me.
Jason: You gotta be kidding, Iolaus.
Hercules: Ah, I don't think so, you know?
1.32 - Cram-Ped
Iolaus: I've already got a one way ticket out of the academy if I don't pass my finals.
Hercules: I know. I read it.
Iolaus: (lightly) You should thank me. When I get kicked out of here, I bet Fiducius'll declare a school holiday to celebrate.
Young Hercules: Cheiron's Warriors
Since taking the second choice, he had been attacked by a phoenix, the god of war, an Amazon tribe, several giants, a venom-spitting basilisk, a bunch of Bacchae, a wannabe assassin, and Hercules' half brother Lucius. He'd been framed for robbery by the god Strife, held hostage by his old gang, and sucked into the dreamworld.
Now he was covered in mud, standing in a wrecked castle on an unnamed island in the middle of nowhere, about to be eaten by the dog of war.