Barriers to Student Helicopter Loans

[AdminLB]

Here are a few things that we know......

 

SSH was one of the first flight schools who figured out (on a mass scale) how to get students who wanted to become pilots the money they needed for training. Although it was a flawed system by virtue of the terms and the payout.......it was a system non-the-less. It should be seen as an expensive mistake from which our industry should learn.

 

The credit crunch and tightening on lending began in 2007, but seemed to really be a result of the tanking real estate market in my estimation. Not really sure how it impacted education loans.

 

I am not a financial market analyst, but I just do not get it? Why will lending institutions NOT consider aviation education (specifically helicopter) as a good risk? If they have a kid who wants to enter a career pilot program, he has good credit, has perhaps a 10% down payment, can get a cosigner, the school accepts pay as you go, there is a program timeline, and they are willing to pay x% interest on the loan.........then why not?

 

Is there a notoriously high default rate on these types of loans? They do it for college loans all the time and many of college grads probably have an equal or less chance of meeting success in their chosen field as the guy or girl who commits to a flying career. I think most people really committed to the program, if they have the funds to go to school, will be successful, become a pilot and pay off their loans in time.

 

It seems to me that the "financial barrier" or access to money is the issue of our time right now. It is having an immediate negative impact on the flight training market, which in turn is having some sort of mid term negative impact on the industry and the replenishment of the pilot pool.

 

I wonder if there are any really smart people or lobby groups out there, working on behalf of the helicopter world trying to knock those barriers down? Groups like the HAI Training Committee or HAI? I see Patrick Corr is now the Chairman of HAI and it would seem that not only is he a very smart guy, but has a vested interest in the topic as well.

 

The questions are:

 

1. What are the financial dynamics at work?

2. Why will the lending institutions not look at a career in flying helicopters as legit enough to loan money for it?

3. Has anyone asked the lenders "what do you need from the helicopter industry?" in order to open up the $$ lending?

[1badz32]

These are some very good questions. I'll be interested to see people's opinions on these issue's.

[Sparker]

There is an incredibly high wash out rate. I wouldn't loan anybody money that wants to fly without them at least earning their private rating on their own. I went through ground school with four other students and I am the only one who is flying two months later. Two of them asked me to cosign with them.

 

Also, when compared with other field of working there is a higher risk due to physical demands. If there is a car accident, motorcycle accident, chain sawing accident, etc, etc and the pilot loses their medical certificate for any other reason (medicines, depression, etc.) they won't have a job to pay the loan with.

 

I would like a 65K 5% APR gov't subsidized loan, don't get me wrong, but its never going to happen and I'm not going to wait for it. Its not easy or fast, but I am paying cash.

[Jacknife]

I am no financial guru, I think a lot of the concern from lenders is partially a knee-jerk reaction to current general market conditions (nearing recession) and realizing that the practices of the mortgage market are huge liabilities. They kept on pouring money out without due diligence (or sheer ignorance) and finally got burned. Both markets seemed to have the same business plan for the last five years or so. They are tightening the ship up, hopefully with their lessons learned.

 

A direct answer to #2: I think the "Helicopter Pilot" market may be so small it generates little interest in the big financing companies. I think what little interest it has garnered may have come from peoples personal interest in flying. Coupled with the high costs of operating a helicopter, it may not be the ideal investment.

 

Is it the flight school (along with lenders) or the helicopter operators responsibility to find and fill the demand for more pilots?

 

JK

[Sparker]

Is it the flight school (along with lenders) or the helicopter operators responsibility to find and fill the demand for more pilots?

 

JK

 

This got me thinking... if the demand is so high for helo pilots and the credit companies aren't willing to finance to help fill that gap.... will the companies short on pilots finance new pilots for a contract to fly for them.....?

 

Probably not, but if the demand is as great as we are led to believe and financing is so hard to get for new pilots, it can only mean that soon enough there will be a MEGA shortage....

 

So either there isn't as much demand for pilots as they say or people are keeping secrets about how to finance training.

[aviatr]

I have spoken to some of the big banks about using educational loans for helicopter training and got the same answer from all of them. They told me that they only deal with accredited schools.

[Rat]

I used Pilot Finance, they have been great. I did not need a co-signer like sallie mae requested.

[yzpilot]

Traditional student loans may be issued by private lenders (banks) but the federal government generally guarantees them. The only thing getting banks interested in lending to students is that the loans are guaranteed.

 

Getting a bank to do a non-recourse student loan is a tough sale. Overall student loans have a higher default rate (around 5%) than banks are used to. Additionally, loans made to non-traditional students, minorities, non-standard degree programs and those who graduate with a lot of debt relative to their potential income have a very high default rate. The problem cohort has a default rate approaching 25%. So 1 in 4 of the high-risk loans are not repaid. To give you a frame of reference, sub-prime loans were defaulting at a rate of around 15% last fall (we call that a "meltdown").

 

I'm not sure that the lending institutions are making a decision about whether or not flying helicopters is "legitimate." They are simply looking at the fact that the loans aren't guaranteed. In other words, put your house on the line and you'll be shocked at how fast the loan paperwork will get put together. Generally banks lend on collateral, not plans, so this type of unsecured loan is really not the bank's bailiwick.

 

So the real question might be why is the federal government not interested in guaranteeing flight-training loans. That's a much harder question to answer. Lots of variables there. Start with the fact that a flight-training bill never got a politician reelected.

 

To directly answer your last question, what banks would need to start loaning for flight training is guarantees. Manufacturers could probably step up to the plate and offer that guarantee.

 

Buried in here somewhere is the fact that borrowing $70,000 to get a job earning $30/hour is not a good financial plan. The market seems to be out of whack here. The cost to get the training and the reward for having received the training are out of balance.

[Sparker]

I used Pilot Finance, they have been great. I did not need a co-signer like sallie mae requested.

 

What rating did you get the loan for? They only seemed interested in Private Pilot loans last time I talked to them, although now I see they have updated their website for "Commercial Pilot" loans.

 

Buried in here somewhere is the fact that borrowing $70,000 to get a job earning $30/hour is not a good financial plan. The market seems to be out of whack here. The cost to get the training and the reward for having received the training are out of balance.

 

Is there any way to fix this? The only way I can see is to lower the standards of the turbine jobs, because paying instructors more will raise the cost of training... Lowering the standards for turbine jobs would most likely also lower wages since there would be a larger pool to pull from, so in the end in might not be much better anyway.

[mechanic]

fact that borrowing $70,000 to get a job earning $30/hour is not a good financial plan. The market seems to be out of whack here. The cost to get the training and the reward for having received the training are out of balance.

 

This is true for more industries than just flight training. Education is a long term investment, not short term in most cases. Look at Dr's, they spend 8-10 years building debt and owe 150K -250k in loans if they don't have rich parents.

 

Take vocational training for mechanics, UTI schools for example, a buddy finished last year with 29K in loans. If you purchase name brand tools, SnapOn, MAC, Matco, etc.. you will spend another 20k- 60K. Also take note that most job opportunity’s require 3-5 years exp to get descent wages.

 

Accreditation and/or Title IV is the biggest hurdle for heli school financing. Bristow is the only heli school I know of that is accredited and only the FL campus, not LA or CA campuses. Vortex was accredited in MS before the move to LA.

 

Just a few thoughts.

[Rat]

What rating did you get the loan for? They only seemed interested in Private Pilot loans last time I talked to them, although now I see they have updated their website for "Commercial Pilot" loans.

 

I just started on my private, they gave me $18,000 to get going and said they will loan more after 50% is paid off. They approved training through private and partial instrument.

 

Is there any way to fix this? The only way I can see is to lower the standards of the turbine jobs, because paying instructors more will raise the cost of training... Lowering the standards for turbine jobs would most likely also lower wages since there would be a larger pool to pull from, so in the end in might not be much better anyway.

[Rogue]

This is true for more industries than just flight training. Education is a long term investment, not short term in most cases. Look at Dr's, they spend 8-10 years building debt and owe 150K -250k in loans if they don't have rich parents.

 

Take vocational training for mechanics, UTI schools for example, a buddy finished last year with 29K in loans. If you purchase name brand tools, SnapOn, MAC, Matco, etc.. you will spend another 20k- 60K. Also take note that most job opportunity’s require 3-5 years exp to get descent wages.

 

Accreditation and/or Title IV is the biggest hurdle for heli school financing. Bristow is the only heli school I know of that is accredited and only the FL campus, not LA or CA campuses. Vortex was accredited in MS before the move to LA.

 

Just a few thoughts.

 

 

I can attest to that, though I only accrued one eight thousand dollars in vocational school debt to become either a diesel or automotive repair technician. I do now after one six years have around eight zero thousand dollars in tools. The highest pay I've made working for someone else has been four zero dollars per hour and am currently making three one dollars per hour ( and making more per week - figure that out ) but I spent many years, probably my first ten years, only making between ten and twenty dollars per hour. So.... return on investment... nope. I used to love it and that's why I do it, now I kind of like flying.

[aviatr]

Accreditation and/or Title IV is the biggest hurdle for heli school financing. Bristow is the only heli school I know of that is accredited and only the FL campus, not LA or CA campuses. Vortex was accredited in MS before the move to LA.

 

Just a few thoughts.

 

 

As I mentioned in an earlier post, the banks I spoke to (Key Bank, Wells Fargo and Bank of America) all told me that they only deal with accredited schools.

 

Wonder why the heli schools don't become accredited?

[mechanic]

Wonder why the heli schools don't become accredited?

 

If I remember? The school must have been in business min 2 years, have proof of X amount of students graduating, have a financial review of the business etc... And it costs money to do all this. I am sure there is more to it than what I have mentioned. From what I have heard its not quick and easy to do.

[Jacknife]

If I remember? The school must have been in business min 2 years, have proof of X amount of students graduating, have a financial review of the business etc... And it costs money to do all this. I am sure there is more to it than what I have mentioned. From what I have heard its not quick and easy to do.

 

Also, I they need to be bonded.

I saw this article in the local newspaper:

 

http://deseretnews.com/article/1,5143,700250432,00.html

 

helicopter pilots are not the only ones up a creek.

JK

[ParagonAZ]

To somewhat further what Sparker mentioned, I think the companies need to step up and fill the void if they want to fill the training void that is being left with the current financial situation. They key is for them to do a little creative financing and contracting. Now, granted the Helicopter companies don't want to get into the financing business (nor should they), but they could take some ideas from other sectors.

 

(I'm using GOM employers as an example here, but this could apply to any sector, EMS, Longline, etc). It seems like a good majority of students take the student->CFI->CFII->500 hrs ->GOM ->2500+ hrs ->the-job-I-got-into-this-business-for-in-the-first-place route.

 

That being said there is quite a bit of churn in the GOM sector as low-time pilots 'earn their keep' in the Gulf, hit their mileage benchmark and move on -- leaving the GOM employer with a constantly rotating pool of pilots. Having looked at this option, I noticed that many of these types of operations run on a 14 on/14 off basis or similar. So, I thought while a 2-week vacation is great it is not necessarily time well spent. Besides doing my core video work (more on that later guys...), what else could I do? A while back I did a series of videos for Swift Trucking here in Phoenix...having that exposure I figured I could learn to drive a rig for that slack 2 weeks...so I called:

 

They have an interesting program...walk in the door with $150..go through their training for 5 weeks and start paying back the cost of your training as deductions from your paycheck. The company also matches funds over time so you end up recouping your training costs. Now granted we are only talking about a 5-week, $3900 program but the concept could scale to our industry--

 

Say you sign on with AirLog for a minimum 4 year commitment, go through Bristow training and come out with a $56K training bill. According to helicoptersalaries.com the entry-level AirLog pilot makes about 52K per yr. Now say they garner 15% of your salary to pay off your training debt... ($7800 per year) over 4 years that's $31,200 - more than half of the debt outside of interest, etc. If Airlog takes the trucking model and matches repayment funds..you are done with your training commitment, Airlog has had you for 4 years versus 2 and has a more experienced (and indentured) employee pool. I know I am talking simple math here and the salary goes up per annum, etc. but you get the drift.. This is also akin to signing up for ROTC programs in college - you get the benefits of the scholarship program, but the military has your a$$ for 4 years until YOU meet the commitment in kind that Uncle Sam made to you.

 

So AirLog /ERA/ PHI and all the rest...who's going to come up with a creative financing plan that can get the talent pool motivated first?? Whoever is first to the plate with a viable solution I would be more than happy to meet with them with video camera in hand so they can explain it to everyone else here...

 

-paragonAZ-

[Rogue]

paragon - I proposed a similar idea a while back

 

http://helicopterforum.verticalreference.c...ost&p=58447

 

I second the notion why not just use the GOM as a training ground since that is what is done anyways...

[jehh]

As I mentioned in an earlier post, the banks I spoke to (Key Bank, Wells Fargo and Bank of America) all told me that they only deal with accredited schools.

 

Wonder why the heli schools don't become accredited?

 

Because it is an expensive, time consuming process...

 

I spent a lot of time and money last year working on just this, before putting the whole thing on hold last November. I calculated it was going to take another 12 to 18 months, and a bunch more money, as well as another full time employee or two, and that is just to get accredited.

 

Then you have to get DOE approved (Department of Education), which takes more time and money, plus you have to meet a ton of requirements from them, many of which do not lend themselves to flight training.

 

After that, you have to get on lenders approved list, which isn't as easy as it sounds.

 

The whole thing is a monster... Bristow and HAI are accredited with ACCSCT, but neither are DOE approved, for various reasons.

 

Basically, the banks are using DOE as their first vetting tool, then they do their own checks. Just because you're DOE approved does not mean a bank will work with you. They will look at your graduation rate, drop rate, and repayment history of your students. You have to maintain a decent record to keep all of the above.

[jehh]

Here are a few things that we know......

 

The credit crunch and tightening on lending began in 2007, but seemed to really be a result of the tanking real estate market in my estimation. Not really sure how it impacted education loans.

 

The entire banking system runs on liquidity, that is the amount of free cash that flows through the system. As the real estate market crashed, it put the brakes on a lot of lending, which had a trickle down effect. That effect took time, but it finally hit earlier this year with Sallie Mae running into problems obtaining funding on the open market. Now Sallie Mae is in trouble and not funding much of anything. In fact, they are behind in funding loans they have already approved.

 

I am not a financial market analyst, but I just do not get it? Why will lending institutions NOT consider aviation education (specifically helicopter) as a good risk? If they have a kid who wants to enter a career pilot program, he has good credit, has perhaps a 10% down payment, can get a cosigner, the school accepts pay as you go, there is a program timeline, and they are willing to pay x% interest on the loan.........then why not?

Because banks don't lend money that way. Banks use actuarial tables to determine an expected default rate for various types of loans. Sometimes they get them from Fair Isaac (the creator of FICO scores), sometimes they use their own internal lending system, but however they come up with it, at the end of the day, they lend based on prior history of similar loans paying back over time for similar credit risks.

 

This means that while you might have a 800 point credit score, that only acts as a modifier to the approval process, they want to know what you want the money for. If you're asking for $5K, they'll consider other debt, income, etc. But they also know that $5K is within reason so they lend that kind of money to most people. If you're asking for $75K, that is another matter, because most people simply do not have the means to pay it back outside of a really decent paying job.

 

Is there a notoriously high default rate on these types of loans?

 

Yes, student loans generally default more than other types of loans. Currently the rate is running at about 5%. That may not seem like much, however there are no assets behind the loans. If you default on your car loan, they at least get the car back, limiting their losses. On these loans, there would be nothing to take away.

 

They do it for college loans all the time and many of college grads probably have an equal or less chance of meeting success in their chosen field as the guy or girl who commits to a flying career.

 

Colleges have published default rates for their graduates which banks can use to adjust their lending. This is why Bank of America may lend you $10K to go to college A and $20K to go to college B, because of the different default rates between the two schools.

 

1. What are the financial dynamics at work?

 

Banks generally do not hold their loans on their books, they bundle them together and sell them as securities or CDOs or whatever.

 

It is hard to resell something that no one really understands. Even now, college loans are getting harder to resell, which is why 27 out of the top 100 student loan companies have gotten out of the student loan business, there isn't much of a market for this stuff right now.

 

Also, banks are run by people, who answer to other people, who have to deal with yet more people. All of those people understand car loans, and college loans, and whatever... They do not understand helicopter training loans... People do not generally lend money for things they do not understand.

 

2. Why will the lending institutions not look at a career in flying helicopters as legit enough to loan money for it?

 

Because they do not have enough information. What are the graduation rates, default rates, drop out rates, etc? Without that information, banks have no way to evaluate the risk.

 

3. Has anyone asked the lenders "what do you need from the helicopter industry?" in order to open up the $$ lending?

 

Yes, and the general answer we got was "we're not interested". We grew tired of hearing the same answer after speaking to more than 100 banks and credit unions, large and small...

 

Now perhaps we're too small to interest them, perhaps this is something that HAI needs to get involved with, but in my experience, HAI isn't really interested in the flight training side of the business, they are more focused on the commercial operations part... (yes we are a member)