Student Loans are out of control

francisco collazos

francisco collazos

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So twice over the last two weeks someone has posted loan terms for going to flight academy. The one last week had a variable interest rate of 17% and the one last night was a 100k loan at 20%. The posts on the one last night were shut down after most people tried to explain to the poster that he'd be paying 400k for that 100k loan. According to the moderators the page was an aviation page and not a finance page and not up for discussion. I think these loans are predatory and I don't understand how someone can think this is a good idea. All it takes is one layoff or furlough and you are screwed possibly for life with loans that can't be discharged via bankruptcy. Unfortunately, my profession is close to this problem and the majority of graduates get placed on repayment plans which I see as t modern indentured servitude. I really think something needs to be done about this because the people in my profession are not stupid, these are very intelligent hard working people that still get duped into getting these loans. I figured I would post this here in the pilot training forum but if it's in the wrong place please move it.
Thanks
 
It’s kind of a chicken and egg situation to some degree. These folks want to pursue Aviation, but don’t have the means necessary to pay for it out of pocket, especially if they’re wanting a fast track program. Those schools do a great job with marketing, to the point where most of the people going to them think that’s the only pathway to reach their goal and then get suckered into the whole system.

But yeah, loans with those kinds of terms are basically designed to keep you in financial ruin. You pretty much never touch the principal and just keep feeding the lender until you die.
 
ftfy
But yeah, loans with those kinds of terms are basically designed to keep you in financial ruin. You pretty much never touch the principal and just keep feeding the lender until you file bankruptcy and the bank eventually goes under from everyone defaulting and the taxpayers eat the cost.
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Clip4 said:
Start your own company that loans unsecured funds to people with little or no assets for a lower rate.
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Right, but it’s essentially like a title loan company. They’re just leveraging capital a little differently.
 
Clip4 said:
Start your own company that loans unsecured funds to people with little or no assets for a lower rate.
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I see this brought up but these loans are not dischargeable in bankruptcy unlike business loans. Ironically, I haven't seen business loans with these kind of terms. The government will even garnish your SSI.

There's a reason why there are pay day loan restrictions.
 
How are they "getting duped"? I agree that the loans/companies are relatively predatory, but the terms and conditions are laid out pretty clearly. If a person doesn't have the ability to see that taking out a loan under those terms is a bad financial decision, that doesn't fall on the loan company. That falls on that person or possibly that person's parents if the person in question is young. You don't have to be a financial genius to know that taking out an $100k loan for airline training is basically gambling on the economy.

At some point, you have to accept that your life may be limited by your current earning abilities or you will have to accept the terms and conditions that come with the loans. If you don't have the monies to pay for a fast track program, you're going to have to forego that path and take five or twelve years to get to the airlines. Life isn't always fair or fun, but that's just the way it is.
 
SkyChaser said:
How are they "getting duped"? I agree that the loans/companies are relatively predatory, but the terms and conditions are laid out pretty clearly. If a person doesn't have the ability to see that taking out a loan under those terms is a bad financial decision, that doesn't fall on the loan company. That falls on that person or possibly that person's parents if the person in question is young. You don't have to be a financial genius to know that taking out an $100k loan for airline training is basically gambling on the economy.
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I would agree with the term “duped” because part of the predatory process in this case is the lender knowing that a certain portion of the population is either not financially savvy enough to understand what they’re signing, or is so emotionally tied to the subject that they’re willing to believe that this kind of loan is “normal.”

In the latter case, it’s not just the loan company that’s doing the duping, however…it’s a large part of society (to include, as @EdFred correctly pointed out, the government) that’s assisting in duping them.
 
Maybe I'm just an old curmudgeon, but why on earth would someone have to be taught that:

If you borrow money, you will have to pay it back.
When you do borrow money, you at least need to know how much your payments will be and for how long.
If your payments are more than your expected salary, or don't leave enough to live on, it is probably a bad idea.

I don't think anyone ever taught me that. It just seems sort of natural, like if you are hungry you eat or if you are thirsty you drink and if you have to take a crap, drop your drawers first.
:stirpot::rolleyes1:
 
SkyChaser said:
How are they "getting duped"? I agree that the loans/companies are relatively predatory, but the terms and conditions are laid out pretty clearly. If a person doesn't have the ability to see that taking out a loan under those terms is a bad financial decision, that doesn't fall on the loan company. That falls on that person or possibly that person's parents if the person in question is young. You don't have to be a financial genius to know that taking out an $100k loan for airline training is basically gambling on the economy.

At some point, you have to accept that your life may be limited by your current earning abilities or you will have to accept the terms and conditions that come with the loans. If you don't have the monies to pay for a fast track program, you're going to have to forego that path and take five or twelve years to get to the airlines. Life isn't always fair or fun, but that's just the way it is.
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Exactly.
 
It's interesting to see how many people on here don't really understand that a very large portion of the population in the US is utterly financially incompetent. Frequently, it's a function of poor education (public schools do a terrible job of teaching any sort of financial literacy) and parents/family with equally poor financial education. There's a bit of a selection bias on here, as most folks who fly or own airplanes are at least reasonably well educated and semi-successful. But there are a ton of folks who simply don't understand even simple financial concepts like interest, compounding, amortization, etc.
 
This seems like a symptom of at least two larger problems;
1: A public education system which fails to teach basic, everyday math.​
2: A lack parental oversight.​

At some point, the parents should be talking to their kids about finances and loans and interest rates and good bets and bad bets. A 100k loan for an aviation career is solidly in the bad-bet category. Much like 100k loans to be a teacher or a nurse, the end-goal (career) does not pay enough to justify the cost of the loan.
 
Let'sgoflying! said:
I don’t ‘like’ lifelong loan repayments but I don’t see how they are duping anyone.

The loan contract is given to them for review, they look over the terms, then they have the choice of signing, or not signing.
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Kind of like getting in a carbon fiber submarine to go visit the Titanic. Some times you don't know what you don't know, but do it anyway.
 
midwestpa24 said:
Kind of like getting in a carbon fiber submarine to go visit the Titanic. Some times you don't know what you don't know, but do it anyway.
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True, but that’s on the customer to research, not the sub pilot to explain.
 
I think that we can agree that the passengers signed away their lives.

Their relatives did not, and there lies the legal quagmire that is coming.
 
NBC Nightly News the other night mentioned pilots pulling in 700K/year. My 1st thought was, sure, but it's long road to get to that level. Stories like that and the pilot shortage I'm sure pushes some into bad decisions.

I tried pretty hard to educate my kids on financial matters. Every now and then they still shock me. Just the other day I was telling my daughter now that she has some money and that interest rates are no longer near 0, where she parks her money now makes a difference. She asked my why she has to pay interest to someone to hold her money o_O
 
Todays twisted logic, though.

But the government will erase the loan if you do not pay it off. Do you not read the papers or watch the news? It is the company that makes the loan which should get taken for a ride, financially. Or at least that is the current assumption in high places.

I received my training on interest, compounding, and the extreme danger of low payment balloon loans from my Grandfather. I was sitting beside his rocking chair on his front porch, less than ten years old.

Since that was his own first house, I presume that he learned from other peoples mistakes. That is a cheaper way to learn, and I have done well at it since he died, and I was 14.

Friends parents were also of the same opinion, as I had good luck choosing friends. The classic was the one whose wife totaled his car, he caught the bus to a Ford dealer, picked the car he wanted, and wrote a check. A call to his bank assured the check would not bounce.

Student loans are such a weird world today, no wonder that sales persons can talk young people into signing.
 
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JOhnH said:
Maybe I'm just an old curmudgeon, but why on earth would someone have to be taught that:

If you borrow money, you will have to pay it back.
When you do borrow money, you at least need to know how much your payments will be and for how long.
If your payments are more than your expected salary, or don't leave enough to live on, it is probably a bad idea.

I don't think anyone ever taught me that. It just seems sort of natural, like if you are hungry you eat or if you are thirsty you drink and if you have to take a crap, drop your drawers first.
:stirpot::rolleyes1:
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They wouldn’t have to be taught those things if they weren’t inundated by people saying the opposite.
 
I agree these loans are a terrible idea for the borrower in almost all cases, but hard to blame the lender considering the amount of risk they have... This really falls on parenting, as currently there is no structure for teaching young people financial acumen outside of the home unless they specifically seek it out, which many don't.

One of the best paths to funding flight training is the military, even if you aren't flying for them. GI bill I believe covers all ratings except Private. And no you don't make a lot of $ in the mil early on but you also don't have a ton of expenses so should be able to save to cover costs associated with flight training that GI bill doesn't cover. Many young people don't realize this as an option, or if they do are afraid of serving for whatever reason.
 
Some financial lessons can't really be taught but they can be learned. You can't really teach a person how much it hurts to fall down a set of stairs but experience will give them the understanding of it.

Just yesterday I had a conversation with a young person (mid thirties) that is in a monetary bind from simply attempting to live beyond their means. Hard to make them understand that sometimes you have to drive old cars, eat beans, and learn how to do your own home & auto repairs until you gather enough "scratch" together to make the money start working for you. Simple rule that many young folks aren't taught, but a bunch of us learned it (yes I did too) after making a few bone headed financial decisions that threw away a bunch of money and opportunity.

But we live in the age of, "I gotta have it NOW, I'll deal with the cost later" ...
 
I suspect they’re 20% because they don’t expect many of the loans to be fully paid back. They’re unsecured and high risk for the lender. What are they going to do, take back your flight hours?

The alternative is no loan.
 
JOhnH said:
Maybe I'm just an old curmudgeon, but why on earth would someone have to be taught that:

If you borrow money, you will have to pay it back.
When you do borrow money, you at least need to know how much your payments will be and for how long.
If your payments are more than your expected salary, or don't leave enough to live on, it is probably a bad idea.

I don't think anyone ever taught me that. It just seems sort of natural, like if you are hungry you eat or if you are thirsty you drink and if you have to take a crap, drop your drawers first.
:stirpot::rolleyes1:
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Totally. I think what has happened is that nobody takes responsibility for their own actions. Everything is someone else's fault. Nobody is forcing anyone to take loans. The borrower knows what they are getting into and then cries foul later. I run a business and I literally have people deny that they ever got my services just so that they dont pay for it.

Years ago I pursued higher education. I borrowed 300k. I knew what I was getting into. Graduated in 2009 with that 300k and then went into more debt after buying the business real estate for 150k and the business for 325k plus 50k working capital. I was in debt up to my eyeballs. Many sleepless nights just looking at that excel sheet and payments. 5-6 years ago I finally had enough of being slave to my debt. The wife and I decided we're going to do something about it. We lived under a rock for 3 years. Didnt see the inside of a restaurant (even fast-food) for years. I worked mon_Thu at my business and then picked up extra work of Fri, Sat, and every other Sunday. Literally was feeling sorry for myself and my family. 2 years ago I paid off all personal debt and student loans. As of right now I owe 250k (100k remains on the business note and 150k SBA loan taken during covid). I am dying to jump ship, get out of my current career, and start new in aviation but I need $. I plan on paying off the remaining debt in 1-2 years then save like crazy to start the aviation journey. Nobody made me take those loans and terms. I did and I signed the promissory note that I will pay it back and I did/doing it. You are welcome tax payers for not making you carry my burdens.
 
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You would think that by being smart you would also have financial literacy but believe it or not that is not the case. I do think that parents should be more financially smart and pass this down to their children. Part of being young is not having the experience to know this is a bad deal and along with this, the starry eyed sense that they got a long life ahead of them to pay it off. This is a huge problem in the veterinary field and these are not dumb people but seeing many of these people come out owing 3-400k and making comments like " I haven't seen my loan amounts" or " I just won't look at the loans" is really disheartening. There is no downward pressure to prevent schools (state and private) from charging what they want to charge. If it were me I would only loan what the average yearly income would be as well as a 1-2% fixed rate loan.
 
bflynn said:
I suspect they’re 20% because they don’t expect many of the loans to be fully paid back. They’re unsecured and high risk for the lender. What are they going to do, take back your flight hours?

The alternative is no loan.
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“We can help you, with debt consolidation and reduction programs that the credit card companies don’t want you to know about!”
 
bflynn said:
I suspect they’re 20% because they don’t expect many of the loans to be fully paid back. They’re unsecured and high risk for the lender. What are they going to do, take back your flight hours?
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These loans are not dischargeable in bankruptcy so they seem to have less risk than business loans.
 
MauleSkinner said:
“We can help you, with debt consolidation and reduction programs that the credit card companies don’t want you to know about!”
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"But wait! If you call the number on your screen right now ... "
 
francisco collazos said:
These loans are not dischargeable in bankruptcy so they seem to have less risk than business loans.
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I don’t believe you are correct. The loans you are referring are not traditional Sally Mae student loans which can have interest rates less than 5%.
 
Clip4 said:
I don’t believe you are correct. The loans you are referring are not traditional Sally Mae student loans which can have interest rates less than 5%.
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Interesting, I thought student loans public or private were not readily dischargeable in bankruptcy
 
MauleSkinner said:
“We can help you, with debt consolidation and reduction programs that the credit card companies don’t want you to know about!”
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Similar business model.

It’s all about risk, literally the risk of losing money.
 
francisco collazos said:
You would think that by being smart you would also have financial literacy but believe it or not that is not the case. I do think that parents should be more financially smart and pass this down to their children. Part of being young is not having the experience to know this is a bad deal and along with this, the starry eyed sense that they got a long life ahead of them to pay it off. This is a huge problem in the veterinary field and these are not dumb people but seeing many of these people come out owing 3-400k and making comments like " I haven't seen my loan amounts" or " I just won't look at the loans" is really disheartening. There is no downward pressure to prevent schools (state and private) from charging what they want to charge. If it were me I would only loan what the average yearly income would be as well as a 1-2% fixed rate loan.
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The downward pressure in most other parts of the economy is customers taking their business elsewhere when the product offered becomes too expensive. So if the school is too expensive, find a cheaper school or forego the degree and learn a trade. Quite frankly, there are very few professions in which college degrees even offer value and almost every student paying $400k could have gone to a no-name college, learned the same or nearly the same stuff, and graduated with 1/10 or less of that 400k. Pricing college so as to put it back into the sector of "knowledge" as opposed to its current status of "4 years of partying on Future You's (or parents') dime" might actually be a good thing.

Is it a problem that 18 year olds can sign off on a $400k loan? Maybe, but it seems less like a financial literacy issue and more like a common sense issue or a misunderstanding/total inexposure to the concept of "we can't afford that". I received that response to a lot of the things I wanted as a child, and through that response alone, I learned that money was a resource, and a relatively scarce one at that.

Not enough peoples' parents used to sing "you can't always get what you want" to their kids and it shows. ;) :cool:
 
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2-Bit Speed said:
This seems like a symptom of at least two larger problems;
1: A public education system which fails to teach basic, everyday math.​
2: A lack parental oversight.​

At some point, the parents should be talking to their kids about finances and loans and interest rates and good bets and bad bets. A 100k loan for an aviation career is solidly in the bad-bet category. Much like 100k loans to be a teacher or a nurse, the end-goal (career) does not pay enough to justify the cost of the loan.
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Carlin on education. Comedian? Or Prophet?

 
Imagine the other thread with the guy that wants to fly commercial, is at 100 hours and his CFI won't solo him? If they have a loan like this, they're toast ...
 
I have begged and pleaded with my nephew, but he wants to go to Riddle, and is taking out loans to do it.

They want what they want.
 
Clip4 said:
I don’t believe you are correct. The loans you are referring are not traditional Sally Mae student loans which can have interest rates less than 5%.
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Correct. The Government backed loans are not dischargeable and interest rates are currently around 6%. The 20% loans are private and are dischargeable. They will often require a cosigner to cover their bets.
 
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