Borrowing for flight school

[fry]

When you borrow for a flight training program and those borrowed funds are advanced to the flight school, how do you know the school is going to have those funds available for you to complete your training? Before you signed on did the school show you their bank account? Did they show you their line of credit from a bank? Where will the money come from for future operating costs?

 

This matters to you because if you will be borrowing from a bank and then advancing those funds to the school you are, in effect, making an unsecured loan to the company of your borrowed funds. You are investing in their company...with no security. If the school folds your only recourse to recover the loan you have made to them is to go after their assets in bankruptcy court. It has happened to other students...at ATA in Florida for example.

 

http://orlando.bizjournals.com/orlando/sto.../14/story2.html

 

If the company has not stashed away the advanced loan money of its current students and it does not have an outside source of funds it will need a continuing flow of students in order to pay for its operating and training expenses. What are the chances that this flow could be interrupted? Actually, the odds are pretty good that the flow of new students...at all flight schools...is going to start to decline. It's the interest rates. The flight training business has just gone through a boom due to the availability of easy money. Low interest rates allowed for easy qualifying so students piled on the debt. Interest rates are going up so the boom could be in the process of turning to bust.

 

ATA closed its doors on a Friday right after accepting loan advances from a number of students. Do you want to be the last student to give your loan funds to the school just before they go under?

[67november]

those are the type of people that give this industry a bad rap.

 

I've been thru a commuter airline bancruptcy, lost a months worth of wages, and received 10 cents on the dollar 2 years later.

 

any accredited school should be able to show you the escrow statement for the funds you've paid to them for your training, if they don't hold you funds in an escrow account don't sign the dotted line.

[danter]

When you borrow for a flight training program and those borrowed funds are advanced to the flight school, how do you know the school is going to have those funds available for you to complete your training? Before you signed on did the school show you their bank account? Did they show you their line of credit from a bank? Where will the money come from for future operating costs?

 

This matters to you because if you will be borrowing from a bank and then advancing those funds to the school you are, in effect, making an unsecured loan to the company of your borrowed funds. You are investing in their company...with no security. If the school folds your only recourse to recover the loan you have made to them is to go after their assets in bankruptcy court. It has happened to other students...at ATA in Florida for example.

 

http://orlando.bizjournals.com/orlando/sto.../14/story2.html

 

If the company has not stashed away the advanced loan money of its current students and it does not have an outside source of funds it will need a continuing flow of students in order to pay for its operating and training expenses. What are the chances that this flow could be interrupted? Actually, the odds are pretty good that the flow of new students...at all flight schools...is going to start to decline. It's the interest rates. The flight training business has just gone through a boom due to the availability of easy money. Low interest rates allowed for easy qualifying so students piled on the debt. Interest rates are going up so the boom could be in the process of turning to bust.

 

ATA closed its doors on a Friday right after accepting loan advances from a number of students. Do you want to be the last student to give your loan funds to the school just before they go under?

 

 

Thank you for this post. This should help alot of new pilots. I trained at a school that is accredited and they received all of the loan money through the pcf. The school then spends the students money as fast as they can within six months which is when they said that you would be finished with all your ratings. They also have you take out another loan which is gone in two months. By this time you barely have your cfi. They tell you you need more money to get your cfii which you need in order to work with this school. I am still trying to get mine and the other students money back. If anyone wants to jump aboard let me know.

 

JR

[ascott20]

Fry,

 

This is definitely one of the scarier topics out there, but a good one. It's been awhile, but in my understanding, I thought the school was required to have enough funds at any given time to reimburse unused funds back to the lender, for any reason, as part of their prequisites to receiving loans. I guess this is why so many students have been defrauded in recent times by schools with less than spectacular reputations. I saw something similar to this in the fixed-wing side a few years ago (the ATA one brings back memories) and I was hoping that the industry had learned its lesson. Only time will tell I guess.

[fry]

I saw something similar to this in the fixed-wing side a few years ago (the ATA one brings back memories) and I was hoping that the industry had learned its lesson. Only time will tell I guess.

 

"History has to repeat itself because nobody is listening." I don't know who said that but it certainly is true in business. When money is easy bankers lend too much, borrowers spend too much and business owners overextend themselves believing it will all never end. But it always ends.

 

And once the slide begins it keeps accelerating until it hits bottom. The student inflow slows, cash gets tight and lenders won't lend because the student inflows are slowing. Its a classic vicious circle. Unless the school has salted away some cash (which they never do) or has another source of investment capital (who would invest in a business with declining customers?) they're screwed.