Don't pay in advance

[fry]

From the Orlando newspaper in 2003:

 

SANFORD -- The owners of a now-defunct airline training school have agreed to put the family-run business into Chapter 7 bankruptcy -- effectively cooperating with an involuntary bankruptcy petition brought by more than 100 former students.

 

The decision coincides with an emergency hearing in U.S. Bankruptcy Court aimed at preserving what money Airline Training Academy Inc. has left.

 

Newly appointed trustee George Mills will take control of any assets and collect about $102,000 in insurance refunds due ATA after it canceled policies on its planes.

 

"Before assets start flying out the door, we just want to make sure they go to the right people," says Roy Kobert, attorney for the students.

 

"One way or another, we're going to get to the bottom of this and track down the money trail." [remember this attorney's statement when reading the outcome]

 

Making a Discovery?

 

One path being looked at leads to an unmarked portable building abutting a tarmac. Far from Sanford Orlando Airport's main terminal, a metal ramp leads to the headquarters of Discover Air.

 

Corporate records show that Discover Air and the training school share several directors, almost all family members of James "Captain Jim" Williams, a former Delta pilot credited with starting the training academy.

 

Inside Discover Air, office furniture and half a dozen fake potted plants give the place the feel of temporary residence. A pizza box, much too large for the small wastebasket holding it, is sandwiched between a wall and a desk. General Manager Tommy Barraza does not appear happy that still another reporter has landed on the charter air company's doorstep.

 

"We have nothing to do with the school," says Barraza. "We never got one penny from them."

 

Looking for assets

 

Students are not the only ones scrambling for ATA assets.

 

SunTrust Bank holds the note on about a dozen of the company's airplanes. An undetermined number of former employees, including instructors, were not paid for their last week of work, according to one former staffer, who also was notified that his health insurance was canceled on Feb. 14 -- about two weeks before the school closed.

 

"That shows they knew two weeks before they closed the doors they couldn't make the health insurance premiums for the employees," he says. "I'm starting to wonder now myself what was really going on."

 

Still taking money

 

When it looked as though the Williams family had simply walked away from the situation, Kobert filed a rare involuntary bankruptcy petition on behalf of students.

 

The legal action forces a business into bankruptcy court to deal with creditors.

 

In this case, there are plenty. "I have 110 ex-students who are owed nearly $7 million who signed the petition, and every day I'm getting more signatures," says Kobert. [see the outcome below]

 

"The more I find out, the more it looks like local Enron," says Raymond Roland, a former student who says he received 55 hours of training in a Cessna 172 for his $50,000 tuition fee. "That's all the training I got," he says, "but some students didn't even set foot in the door for a class and they're out their money, too."

 

Former student Ted Ballard questions why the flight school continued taking money from students. "They closed Thursday night," says Ballard. "On that Thursday, they took tuition money as late as 11 a.m., had it deposited in the bank by 2 p.m. and closed the school at 5 p.m."

 

The owners aren't talking.

 

After the school shut down, "they basically just disappeared," says Ballard.

 

The family has made no public statements about the school since then.

 

However, Barraza, who says he is in contact with members of the Williams family, emphasizes that the Williams' are involved in behind-the-scenes efforts to help those students who may have lost money. "They're trying to work this out on their own," he says. "That's why they're not available and they're in so many meetings."

 

 

And here's how it ended:

 

The US Bankruptcy Court in Florida ordered the disbursement of funds on 12/20/2006...three years after the company closed its doors.

 

Claims totaled $20.27 million; including $14.5 million from 311 individuals who were probably students.

 

The entire amount recovered, $378,754, was distributed for bankruptcy administration, wages, secured claims and taxes.

 

The students, and other unsecured creditors, got nothing.

[DebosDave]

Fry,

 

Thanks for the great post, a great warning to all!

 

I am curious what you think and what everyone thinks of Sallie Mae wanting to give the student money right to the flight school for dispursement? As it stands now, they may break it up into dispursements, so they don't give a lump sum to a flight school, but the flight school still gets a bunch at a time.

 

I personally like the pay as you go, but with Sallie Mae being a huge lender, there really isn't much way around this. Many flight schools may like having the money up front, but personally, it is a large responsibility to try and keep track of funds for several students.

 

What are flight schools doing with Sallie Mae money? It seems like it would be tremendously impractical to open accounts in students name's if you have several students using Sallie Mae. I can kind of see Sallie Mae's side, they don't want people using career training loans to buy cars and such, but what makes the flight school more accountable than a student? The above post shows that they can be worse than a student handling their own money... at least if the student buys a car, they got something for their money...

 

What suggestions are there for how to handle required pay-up-front monies?

 

Anyway, I guess this is just another example, demonstrating that it is definately buyer beware when it comes to paying up front for flight training.

 

Dave

[500E]

If the loan Co will only pay FS shurely they have a duty of care to check the standing of the school & if they default would it be reasonable to say as you would not pay me go look to the persons you gave ithe money to.

I still say Dont pay up front !! find a way to be in control of the cash, maybe a deposit acc with both parties having to sign to get money out ,and an arbitrator in case of disagreament?

I note the leaches got paid.

[Goldy]

I note the leaches got paid.

 

 

Cockroaches always come out ahead.

 

I wish every student would read this post, and analyze this risk, just like every other risk we all take in flying.

 

500- I wish there was a better way, but Sallie Mae , otherwise known as the US Government, would never distribute those funds directly to a student...and the flight schools know it...and some abuse it. All you can do to help limit the risk, is have as many distributions as possible..so each is the smallest amount, and quickly put a stop to future disbursements if you smell a rat.

 

The school I rent from stops discounting price at 4K, to think that a school would have 50K of my money at any one time is unbelievable.

 

Goldy

[lwalling]

I don't have a problem with prepaying if it helps my cause, in other words, it makes my total investment lower as a result.

 

The key is, always do your prepaying on a credit card, and in lumps that you will use up within the period of time you have to dispute the transaction. That way, if the organization goes out of business, you're well protected.

 

Those individuals taking out loans and prepaying what may be a year or more worth of training, are insane .

[67november]

I'll gladly prepay $1,500.00, but I sure as hell won't prepay $15,000.00

[fry]

I am curious what you think and what everyone thinks of Sallie Mae wanting to give the student money right to the flight school for dispursement? As it stands now, they may break it up into dispursements, so they don't give a lump sum to a flight school, but the flight school still gets a bunch at a time.

 

I personally like the pay as you go, but with Sallie Mae being a huge lender, there really isn't much way around this. Many flight schools may like having the money up front, but personally, it is a large responsibility to try and keep track of funds for several students.

 

What are flight schools doing with Sallie Mae money? It seems like it would be tremendously impractical to open accounts in students name's if you have several students using Sallie Mae. I can kind of see Sallie Mae's side, they don't want people using career training loans to buy cars and such, but what makes the flight school more accountable than a student? The above post shows that they can be worse than a student handling their own money... at least if the student buys a car, they got something for their money...

 

What suggestions are there for how to handle required pay-up-front monies?

 

At the minimum the school must account for each student's loan monies that have been advanced because, basically, these are loans from the students to the school. The school has a liability to the student until the services provided for in the contract have been met.

 

For example, certain flight schools' contracts may provide for 200 hours of flight time (plus various bells and whistles like unlimited ground and sim time) AND that 10% of the contract amount becomes non-refundable monthly regardless of the services provided. In that case the student cannot get a refund of any of the contract amount after 10 months BUT the school still has a liability to provide 200 flight hours. That makes for some complicated accounting if the school has many students all starting training at various times.

 

AND, even though the students may not be entitled to a refund under the terms of the contract, if the school runs out of cash and goes belly up the student has a claim for the value of the unused flight time provided for in the contract.

 

The easiest way for the school to handle the student loan advances is with a separate bank account, an impound account, for the advanced funds. As the services are provided cash is moved from the impound account to the school's general operating account. That way the cash committed to future operating costs is not comingled with the company's general cash...i.e., the cash available for whatever the owner may want to spend it on. It's not a guarantee that the advanced funds won't be used but it does demonstrate that the school is trying to manage their finances responsibily. If the school doesn't maintain a separate bank account for advanced funds...just throws all the cash together in a single operating account...that should be a red flag.

[zemogman]

I pre-pay $2000 to $2500 to my school and I'm comfortable with that...I use it up within 2weeks (roughly) and the school has a history that I'm confident pre-paying that amount. I wouldn't be comfortable with more than that.

 

Remember...issues can also come up with the student...i.e. broken hand or leg, medical issues, family problems...Don't be out with too much of YOUR money if at all possible.

[mentor]

Paying in advance is a scary thought, given the number of flight schools that close and make off with students money. Schools that use escrow accounts (held by a neutral party) should be given a closer look. These schools have proven themselves in being able to fly the students first and then receive their payment, generally on monthly cycles, later. Most often these schools are the more experienced and the better value. They most likely have been in business for many years and know how to manage on the EARNED money, and not BORROW from the students. Any refunds are made from the escrow account, by the neutral party. Schools that are associated with State collages or technical schools are nearly always operated in this manner. The State holds the money pays the flight school and makes the refunds. The down side is, it normally takes 30 day to be refunded when requested, but the upside is student loans are available and easer to qualify for.

School that use UVAC are such schools. The one downside is overall cost. You must pay for the a degree. That may add $10,000. or more plus interest to the cost of training. There are flight schools associated with State technical collages that do not require the degree, and these seem to be the best bet. Loans available, State held funds and experienced quality training.

[jehh]

I am curious what you think and what everyone thinks of Sallie Mae wanting to give the student money right to the flight school for dispursement? As it stands now, they may break it up into dispursements, so they don't give a lump sum to a flight school, but the flight school still gets a bunch at a time.

 

That is true, the standard disbursement schedule is 3, with 1/3 coming up front, and the rest spread over the training. You can however have this split up into 6 disbursements if you like, to reduce the amount of outstanding money at any given point in time.

 

I personally like the pay as you go, but with Sallie Mae being a huge lender, there really isn't much way around this. Many flight schools may like having the money up front, but personally, it is a large responsibility to try and keep track of funds for several students.

 

Keeping track of money is not a problem with a proper accounting system. We use TotalFBO for this very reason, because there is never any doubt as to how much money a student has on account, and our daily balance sheet always shows our current liability for unearned customer money.

 

Also, keep in mind that becoming a Sallie Mae school is not as simple as just asking for it... They require you to provide personal financial statements showing that you have $250,000 in the bank to start with before being allowed to offer Sallie Mae loans, so using student loan money to start a flight school doesn't work. Like anything else, banks work with people who have money.

[500E]

Fry

I understand what you say but & a big but If there aint no money, you wont get anything back dont matter what they promis, & once the leaches are stuck in!! there shure is minumal chance of a pay out.

Jehh

$ 250.000 dont sound a lot our pre owned 500 cost more, and these people have overheads, helios, wages, buildings, maintance, $ 2.5 Mill sounds closer and even then I have seen small bancrupt Co with debts of $8\10 Mill.

After it has happened you wonder how they ever got this amount of debt.

The Card Idea is good like it.

The Uni\Col even with extras would have appealed to me if I had to have a large loan.

There are so meany people complaining about being screwed it must be worth taking that extea care.

Any Help.

Where is the spell ch?? was great for months then gone dislexics rule ko.

[jehh]

Jehh

$ 250.000 dont sound a lot our pre owned 500 cost more

 

Perhaps, however there is a world of difference between being able to finance a used MD500 and having $250,000 in cash in the bank...