Financing Questions

[slick1537]

Well I just did some math and I am hopping I did it wrong but I have a feeling I did it correctly. So I was thinking about how much financing flight school would cost. I found a 10 year loan at 9% with a beginning number of 60,000 dollars came out to 142044 dollars total. I think you devide by 120 (the number of months in 10 years) to get your monthly payment right? Holy sh*t, that is over 1000 dollars a month?! WOW, I guess the only answer to get a reasonable monthly payment is to save a pretty good chunk of change to begin with and finance a smaller part of it? Assuming I did my math correctly, and am understanding everything correctly. Thanks for any help in advance.

[DeltaMikeCharlie]

Well I just did some math and I am hopping I did it wrong but I have a feeling I did it correctly. So I was thinking about how much financing flight school would cost. I found a 10 year loan at 9% with a beginning number of 60,000 dollars came out to 142044 dollars total. I think you devide by 120 (the number of months in 10 years) to get your monthly payment right? Holy sh*t, that is over 1000 dollars a month?! WOW, I guess the only answer to get a reasonable monthly payment is to save a pretty good chunk of change to begin with and finance a smaller part of it? Assuming I did my math correctly, and am understanding everything correctly. Thanks for any help in advance.

 

Here is the work up using a spread sheet.

 

 

Loan Calculator

 

 

 

Enter Values Loan Summary

Loan Amount $60,000.00 Scheduled Payment $760.05

Annual Interest Rate 9.00 % Scheduled Number of Payments 120

Loan Period in Years 10 Actual Number of Payments 120

Number of Payments Per Year 12 Total Early Payments $-

Start Date of Loan 6/6/2006 Total Interest $31,206.56

Optional Extra Payments

 

I tried to post the calculator itself but it didn't work, Excel has a loan calculator in templates, Quattro Pro has one to down load and so does Open Office. If you need the loan calc, PM me and I can e-mail it to you Monday.

 

Dave

[fry]

Well I just did some math and I am hopping I did it wrong but I have a feeling I did it correctly. So I was thinking about how much financing flight school would cost. I found a 10 year loan at 9% with a beginning number of 60,000 dollars came out to 142044 dollars total. I think you devide by 120 (the number of months in 10 years) to get your monthly payment right? Holy sh*t, that is over 1000 dollars a month?! WOW, I guess the only answer to get a reasonable monthly payment is to save a pretty good chunk of change to begin with and finance a smaller part of it? Assuming I did my math correctly, and am understanding everything correctly. Thanks for any help in advance.

 

DeltaMike is right, the monthly payments would be $760.05 totaling $91k over 10 years. Might I ask where you found a 9% loan and what the terms are (is it variable, is it a student loan, is it secured or unsecured, any deferral of payment)? My question is related to a discussion on another thread. Thanks

[slick1537]

I didn't I just saw that prime +1 was the best case scenario, as for the math, looks like I don't know what I am doing.

[DeltaMikeCharlie]

I didn't I just saw that prime +1 was the best case scenario, as for the math, looks like I don't know what I am doing.

 

No, don't say that. That is why people pay accountants. LOL. The math isn't hard, you just have to know how to apply it. In other words, have someone else do it or use a calculator like I did.

If you get one of the calculators you can get a pretty accurate idea of what you would pay over many situations. such as loan term, interest rate, and down payment. It helped me to decide my course of action.

 

"keep your dreams alive and they will keep you the same."

[fry]

I didn't I just saw that prime +1 was the best case scenario, as for the math, looks like I don't know what I am doing.

 

Ah, the ole prime-plus-one-with-excellent-credit...SallieMae training loan. Gotcha.

 

Here's some more math for ya. Those loans provide a deferral feature whereby the loan payments can be put off until training is complete. But at 9%...the best case rate but still variable so it can go up while you're in training...that deferred interest adds up. You're racking up not just interest on the principal but also interest on deferred interest.

 

Let's say the lender pays out the entire $60k loan to the school up front (ala Silver State) and training takes eighteen months. When you do start making payments the accrued interest will make your loan amount almost $69k and the monthly payments for ten years will be $869. Even if the loan is disbursed by the lender to you or the school evenly over the eighteen months of training the accrued interest will make the loan total $64k and the monthly payments $810.

 

So, after eighteen months of training you're a newly minted CFI looking to build hours so you can get "a real job"...and you've got loan payments to make. Those monthly payments will require $10,525 of annual gross...i.e., pre-tax...income (this just considers payroll tax because CFIs generally are too impoverished to pay income taxes). Most CFI make, what, maybe $25k a year...gross? That leaves about $13k a year to live on.

 

'Nuff math for ya?

[slick1537]

Well its obvious to me that financing the whole amount is a bad idea. Well financing in general is a bad idea but seems to be the only way to pay for training, so I will try to finance 40k or less. Through my training I planned to work full time nights, so my days will be free to train. Even into CFI hour building, depending on how much free time there is, I can still work part time at night. Are there any free calculators online?

[jdrockin]

The best online calc you can find. It was designed for home mortgages but it works great for anything! http://ray.met.fsu.edu/~bret/amortize.html

[jehh]

Let's say the lender pays out the entire $60k loan to the school up front (ala Silver State) and training takes eighteen months.

 

First, the loan shouldn't be paid to the school up front, that would be foolish.

 

Second, training can be done a lot faster than 18 months, if you're full time at it. If not, it may take that long, but you really shouldn't be paying interest on more than you've used.

 

Even if the loan is disbursed by the lender to you or the school evenly over the eighteen months of training the accrued interest will make the loan total $64k and the monthly payments $810.

 

That is assuming a 10 year loan. A 15 or 20 year loan would make the payments easier to deal with.

 

So, after eighteen months of training you're a newly minted CFI looking to build hours so you can get "a real job"...and you've got loan payments to make.

 

True, and the pain of low pay as a CFI will only hurt for a year, if you work hard at it. In many cases, it takes less than a year to get the flight time.

 

Most CFI make, what, maybe $25k a year...gross?

 

Most? Probably so... But there are options that pay better. Silver State does, abit at the expense of their students. I've seen other schools that offer starting salaries as high as $40K a year. Yes, you do have to do other things besides fly, but will mowing the lawn kill you for a decent paycheck?

 

A school loan for college is going to hurt just as much, this is just highly technical training.

 

Fly Safe!

[fry]

First, the loan shouldn't be paid to the school up front, that would be foolish.

 

Second, training can be done a lot faster than 18 months, if you're full time at it. If not, it may take that long, but you really shouldn't be paying interest on more than you've used.

That is assuming a 10 year loan. A 15 or 20 year loan would make the payments easier to deal with.

True, and the pain of low pay as a CFI will only hurt for a year, if you work hard at it. In many cases, it takes less than a year to get the flight time.

Most? Probably so... But there are options that pay better. Silver State does, abit at the expense of their students. I've seen other schools that offer starting salaries as high as $40K a year. Yes, you do have to do other things besides fly, but will mowing the lawn kill you for a decent paycheck?

 

A school loan for college is going to hurt just as much, this is just highly technical training.

 

Fly Safe!

 

Agreed, paying the loan up-front is foolish. I mention it because that is how it is done at Silver State. The bank begins paying out a portion of the loan proceeds before the training starts and all the the loan is advanced to the school long before the training is even half complete.

 

Again mentioned because SSH's program takes eighteen months and, someone working and training can take that long.

 

You're correct the calculations do represent a ten year loan...$64k for that period requires a monthly payment of $810 for a total cost of $97K. And yes, a 15 year loan would have lower payments...$649 a month...but the total cost would be $116K...nineteen thousand dollars more in interest. A 20 year loan would have payments of $576 a month. But the total cost would be $138k...twice the cost of the training itself.

 

There are significant differences between a college degree and flight training. First and foremost, with flight training you'd better be very sure that flying for a living is what you want to do. That pilot's license is only good for one thing and if you don't get a job flying (for whatever reason...you don't want to re-locate, or travel, or your wife doesn't want to live in the GOM...whatever) you've wasted that money but you still have the loan payments. As far as financing goes, there are better programs available to pay for college...e.g., federal loans with lower rates and interest paid by Uncle Sugar while you're in school...including some that do not have to be repaid at all.

[slick1537]

I have heard some talk of the USVC. Are there any that would recomend it? Basically is what you get out of it worth the hours of time that must be put into it? Fry I was aware in the major increase in the amount of interest you pay by extending your loan 5 or 10 years, and wanted to keep it the shortest term that I would be able to afford monthly payments.

[fry]

I didn't I just saw that prime +1 was the best case scenario, as for the math, looks like I don't know what I am doing.

 

Interesting thing happened to interest rates yesterday. The chairman of the Fed indicated he's probably going to continue to raise short term rates and what happens...long term rates drop. Short term rates are driven by the Fed to heat up or cool down the economy. Long term rates are driven by the expectation of future inflation. High short term rates choke off inflationary pressures and long term rates go down.

 

What's this got to do with financing flight training? When you're talking about an unsecured loan for flight training you're looking at long term time periods...10, 15 or 20 years...but you're in the short-term rate arena...prime + x% or LIBOR + x%. Long term loans at short term rates are very expensive. Today's prime rate is 8%...the expectation is that it will go up.

 

If you get one of these loans make sure you read the agreement for what the cap is...the maximum rate that can be charged...because it is highly likely that your rate will end up there. There are some current students who are going to be in for a shock when their rates reset.

[fry]

A school loan for college is going to hurt just as much, this is just highly technical training.

 

 

Very expensive "highly technical training" that qualifies the recipient for only a narrow range of vocational options.

 

From today's WSJ:

 

"In all, 43% of working-age households currently are at risk of seeing their standard of living fall in retirement. The numbers are especially worrisome for younger families and low-income families. In the case of "Generation Xers," born between 1965 and 1972, about 49% will probably lack the needed funds to maintain their standard of living in retirement".

 

and, "If anything, the findings may understate the size of the problem, Dr. Munnell said. That is because the research makes several conservative assumptions. It assumes people will retire at age 65, when in fact many Americans retire earlier; it assumes that families will annuitize their wealth -- and take out a reverse mortgage on their homes for additional financial support".

 

 

So, a helicopter pilot who loses his medical before age 65 or, who does not have a paid-off house stands a good chance of being in that group that will have to downsized their lifestyle when they retire. Makes ya wonder if paying more than $100k...principal & interest...for a commercial pilot's license is such a good investment.

[klas]

Very expensive "highly technical training" that qualifies the recipient for only a narrow range of vocational options.

 

From today's WSJ:

 

"In all, 43% of working-age households currently are at risk of seeing their standard of living fall in retirement. The numbers are especially worrisome for younger families and low-income families. In the case of "Generation Xers," born between 1965 and 1972, about 49% will probably lack the needed funds to maintain their standard of living in retirement".

 

and, "If anything, the findings may understate the size of the problem, Dr. Munnell said. That is because the research makes several conservative assumptions. It assumes people will retire at age 65, when in fact many Americans retire earlier; it assumes that families will annuitize their wealth -- and take out a reverse mortgage on their homes for additional financial support".

So, a helicopter pilot who loses his medical before age 65 or, who does not have a paid-off house stands a good chance of being in that group that will have to downsized their lifestyle when they retire. Makes ya wonder if paying more than $100k...principal & interest...for a commercial pilot's license is such a good investment.

 

Not having $$ to retire is strictly the cause of choices people make. The more than $100k in student loans is no more difficult than other students graduating with college debt. Lawyers, doctors, people that go to private schools, or even people who don't finish public college in the traditional 4 yrs (which is becoming common place) graduate with high student loan debt that, when finally pd off, is much more higher than the principal.

 

EVERYONE will have to make downward adjustments after they retire, not just helo pilots, because people nowadays only rely on Uncle Sam or are just too self-centered to save for retirement. People only plan for the here and now, it seems, rather than the future.

 

So, my question is why are you wailing against the whole process of becoming a pilot, when the process is the same for any other career choice?

 

You also mentioned that we should imagine a pilot losing his medical befroe age 65 - I thought, and correct me if I am wrong, that pilots have to retire at 60?

[rm7]

You also mentioned that we should imagine a pilot losing his medical befroe age 65 - I thought, and correct me if I am wrong, that pilots have to retire at 60?

 

I thought 60 was the mandatory retirement age strictly for airline pilots. A few people have mentioned flying until they lose their medical... that's what I always thought.

[fry]

So, my question is why are you wailing against the whole process of becoming a pilot, when the process is the same for any other career choice?

 

Because flight training is, as you noted, "no more difficult than other students graduating with college debt. Lawyers, doctors, people that go to private schools...". But the risk not having a paying career at the end of it with which to pay off that debt is much greater in aviation. This industry is has many limitations...this occupation is not right for everyone. But helo flight training is going through a phase of being over-marketed by a few unscupulous schools because easy money loans are available. Given the nature of the work many of these students who are currently buying 200 flight hours will never get to the point of really working in the industry. But they will still have the loan payments. Also, when interest rates go back up and that easy money dries up there is a good possibility that those schools will fold and their students-in-training will be left high and dry. That's why.

[klas]

Because flight training is, as you noted, "no more difficult than other students graduating with college debt. Lawyers, doctors, people that go to private schools...". But the risk not having a paying career at the end of it with which to pay off that debt is much greater in aviation. This industry is has many limitations...this occupation is not right for everyone. But helo flight training is going through a phase of being over-marketed by a few unscupulous schools because easy money loans are available. Given the nature of the work many of these students who are currently buying 200 flight hours will never get to the point of really working in the industry. But they will still have the loan payments. Also, when interest rates go back up and that easy money dries up there is a good possibility that those schools will fold and their students-in-training will be left high and dry. That's why.

 

I just don't find it all that different from other career choices. You take that risk of not being able to find a job in your degree with all degrees. I realize that your 1st job flying helo's is pretty low paying, but that can be true for any job.