Being the lazy bugger that I am, lately I have been slowing way down on my rants against loans. I kind of get tired of trying to find new ways to say the same old thing. That being the case I have decided to gather some of my old posts all in one place for future posterity (or should I say "posteriority"? 
), so I can simply refer back to this post whenever I want. Cool, huh?
Ergo, enjoy the rantings of a financial conservative lunatic:
(er.... procedural matter; for reference the first couple of words of each post will be a link back to the original thread, in case someone is interested in the background.)
Yeah, yeah, I know......but laziness triumphs over the possible perception of self-indulgent behavior in this case.
), so I can simply refer back to this post whenever I want. Cool, huh?Ergo, enjoy the rantings of a financial conservative lunatic:
(er.... procedural matter; for reference the first couple of words of each post will be a link back to the original thread, in case someone is interested in the background.)
SteveC said:My suggestion (and I know it won't be popular) is don't go in debt. Debt will eat you alive. Tell Key and the rest of them to kiss off.
Instead, work two or three jobs for a couple of years and stash every single penny you can away to pay the upcoming school bills. Eat mac & cheese or them noodle things instead of going out to the restaurant. Scrimp, save and be as tight as my old Dutch uncle. Or pay as you go with a local FBO. Any way that you can, end up in a position where you can start earning a very meager living by flying, instead of earning a meager living by flying and owing even more than you'll make for the next ten years to some rich banker.
It's tough enough to survive on what low-time pilots earn, much less try to pay off $30,000, $40,000, $50,000 or more in loans. Better to have to work extra jobs now than do it while trying to fly full time as well. Extra jobs and long hours don't add to someone's life expectancy when working most of the lower paying entry level aviation jobs, you know.
If this dream is really worth it for you, you're going to have to make some sacrifices somewhere along the way. Better (again, in my opinion) to do the painful part up front, rather than have to live with the pressure and worrys for years down the road. Sacrifice now and enjoy it later.
Just my opinion...
SteveC said:My bet is that Key is finding out that CFI's and regional pilots can't afford to pay back those big loans at the wages they make. Key Bank isn't in the business of giving money away without getting it back......with interest!
Take a hint, guys. If the banks won't loan it to you, it's because they realize that they can't make money off from you. They are not in business to turn people down for loans, they want to give you money!
People getting turned down for huge flight training loans should be a red flag for everyone. Lending organizations love to have people in debt up to their eyeballs, as long as those people can still make the payments. Beyond that level and the lenders start losing their shirts also, not just the borrowers. If the lenders are seeing more people get into debt beyond their means to pay back the loans, then they change their lending policies. I think that you should keep this in mind when trying to figure out if you can afford those large debts in the first place, especially considering your income potential over the next few years.
SteveC said:19 or 29, can't see that it makes much difference. In fact, you should be in a better position at 29 (i.e. more earning potential) to build the flight training fund faster than a younger person, no? If you have a wife and family depending on you, even more reason not to be in huge debt on a limited income, I think.
I was in my thirties before I learned to fly. At that time, I didn't have any aspirations of doing it as a career, I just wanted to fly. Now here I am, ten+ years later, working full time as a pilot and having a blast. I'll never be an airline pilot, but that kind of flying never interested me anyway. Maybe that means that my advice in this area doesn't fit your situation exactly, but I'll stand by my firm beliefs that debt is a killer.
Hang on while I go on another one of my "Debt Rants"
Debt is a never-ending spiral downward for far, far too many people. I know doctors and lawyers that make more than airline captains, and if they ever have a glitch in their life (out of work for medical reasons, car , whatever) the debt that they have piled up will quickly drive them into the ground. Granted, they live in very nice homes and drive very expensive cars, but the frowns that I see on their faces when they talk about finances, well, they have headaches that I don't want.
I certainly have no problem with wanting and owning nice things. I do have a problem when people who should be rich get upside down on car leases or loans, have two mortgages on their high 6-figure home, and have 5 credit cards maxed out to pay for the month long vacations in Europe and fancy home furnishings. Yeah, they can afford all those payments now, but what if something happens?
What does that have to do with our discussion? Simply that those doctors and lawyers that are in debt learned those money management skills very early on.
Here's the scenario for the doctor:
1. Huge loans to get through med school.
2. Credit card debt to cover the incidentals.
3. Car loans to buy a nice vehicle instead of driving a junker.
4. Graduate, become an MD and start making some real money.
5. Rather than pay down the loans they have, their income rises to a level that they can afford fancier cars (leased of course), and a bigger house (with a bigger mortgage) and some nifty remodeling (second mortgage), and nice furnishings (on the credit cards, of course).
6. The need for more and belief that *things* will make them happy drive them ever onward, never catching their breath and working out of debt. Just keep adding more because "they deserve it" and "they can afford it".
I wonder if any of the mainline pilots on this board have seen airline captains in the same kind of situation?
As far as your particular situation, who knows? How many people that want to be airline captains end up not making their goals, usually through no fault of their own? You have to be in the right place at the right time to make it to the high paying jobs in this industry. Take a good hard look at everything that is going on right now with all the shake-outs in the Regional and Major airline ranks. Can you imagine being a 5th year pilot at a regional, finally making enough money to start paying down your flight training debts, and get furloughed? I'd sure rather not have that additional $500 or $800 monthly payment hanging over my head at that point.
I'll say it again, though, that I'm weird. I'm in the minority in this country on this topic. People all over think nothing of owing money on practically everything they "own".
SteveC said:So Sallie Mae only wants to give me $20,000 - we all know that is not enough. Key Bank won't approve any school around here. Is there anywhere else to get money for Flight Training?
Let me try rewording my response.
I think loans are a bad idea as a way to pay for flight training.
First off, loans are just a bad deal from an overall monetary standpoint. If someone borrows $40,000 with a ten year payback, they will be giving the lending institution somewhere between $10,000 and $15,000 for the privilege of using their money.
Secondly, they are adding debt at the very time that they can least afford it. Someone starting out in the piloting profession is not going to be making very much money for the first few years, and adding a $400 or $450 dollar monthly payment ($40,000 loan, 10 yr payback, 5-6% interest) onto the debt load at that point could be the straw that breaks the camel's back. Here is a quote from another thread that was posted just last night: "I did the Key Bank loan and although the 6-month deferment was great, my parents ended up helping out when the repayment started. I just don't think a $250+ loan payment is doable on a $1000-1200 monthly salary."
If you watch these boards long enough you will see plenty of inquiries about second jobs for CFI's or FO's. My thought is that if someone is going to need a second job to pay for the cost of flight training, isn't it better to make the sacrifices before rather than after, since earning the money before hand will save $15,000?
Thirdly, I think that a limited offer from a lending institution should be a warning to take a serious look at one's financial ability to pay back a larger loan amount than lender is willing to offer. Unless Sallie Mae is a unique lending agency, they are not in the business of giving money away without a pretty confident expectation of getting that money back, plus some. They expect to be paid back with interest. Their whole existence is based on that premise. If they won't give someone more than $20K, then I presume that they don't think that that person will be able to pay back a larger loan amount based on their income potential (and a whole bunch of other factors as well). That should be a red flag. If a lending institution doesn't think that someone can afford a bigger loan, they are saying that because of past history with other people in very similar situations.
(As an aside, I'm sometimes surprised that more people don't question why there are only two lending institutions in this country that routinely give loans for flight training. Most banks and lenders just love to find new ways to loan people money so they can make more off the interest, so why aren't they lining up at the door to give pro-pilot-wannabes loans? 'Cause the odds aren't good enough for 'em, me thinks.)
Anyway, Joel, my apologies if my original response came off as a personal attack or commentary on your situation. I don't know your situation. But yes, I am a founding member of the peanut gallery.
I see one of the prime purposes of this website to be to educate up and coming pilots about the different options available on how to reach their goals. Thus all the discussions about the pros and cons of different academies, academies vs. FBOs, and PFJ discussions. I think that there needs to be more discussions about the good points and bad points of financing training as well, and I hope that more of the CFIs and regional FOs will chime in with their experiences in that area as time goes on.
SteveC said:wow do airplanes make people crazy? Does your daddy who may sell his truck understand the risks your getting into? do you? The bank is denying you bc they did the math, literally
Well Key has given money to people less qualified. Why deny perfectly good people? Are there really that many CFI/FO's defaulting on their loans? And most parents will give up a hell of lot so their children can chase their dream. Who is anyone here to tell try to convince otherwise.
I think what farwellbooth was getting at, and I also said it earlier in this thread, is that Key is denying the loans because they believe there is a chance that the applicant won't pay it back! That should be a big clue to take a look and re-think whether or not the applicant should be borrowing that large an amount of money, especially considering their earning potential for the next few years. It's not a matter of denying someone their dream. It's a matter of dollars and cents.
As I said before, the lending institutions want to loan people money. It's how they make their money. The only thing that they don't want to do is to loan it to people that can't pay it back (with interest, of course). The banks will bend over backwards to help their clients get as deeply in debt as they think they can get them, while still having a chance of making payments. If the borrower goes bankrupt or defaults, everyone loses. The banks don't even want to have to go after co-signers if they don't have to. It costs them time and money to pursue payment from deliquent accounts and from co-signers.
Key and Sallie turn people down for a reason. The fact that people are (occasionally) having a hard time getting approved should make everyone seriously consider the difficulties involved with paying back those huge flight training loans.
SteveC said:I think that there are quite a few people on this board that would agree with your friends and family. Well, not in agreement about the "going off the deep end", but at least advising against taking out huge loans. I've seen quite a few posts from people that are struggling to make loan payments on top of normal living expenses while making CFI or regional FO wages, and many of them are saying that they wished they had taken a little bit longer to finish their training and did more pay-as-you-go rather than take the big debt. The slight delay in instant gratification is more than offset by piece of mind (financially) and stress reduction.A lot of my friends and family are thinking I've gone off the deep end for even considering going so far in debt just so I can (hopefully) get a job that will most likely pay only half what my salary is now, but big whoop.
SteveC said:Well my standard reply is that I don't think taking out huge loans for flight training is a good idea. Much better to take an extra year or three and keep your ramp job and pay for your training as you go.
Have you ever calculated what the interest cost is on those loans? I can't think of any reason to waste all that extra money and put myself into such a precarious position. Precarious position meaning having a big loan debt hanging over my head with minimal income - any little glitch at all like an auto , hurricane, mugging, whatever, and your financial well-being is down the sewer.
Again, I don't think that there is any reason to rush. Listen to the guys around here that are twice (or three times) as old as you and you will hear them say that the journey is, in many many ways, more fun than the end goal. Lots of stories about flying freight, or jumpers, or traffic, or instructing, being more fun than doing FL350 reading a newspaper every day.
Take your time, enjoy the journey, learn more, be a more well-rounded pilot. Do some other jobs along the way to help pay your way, and as a bonus become a more well-rounded individual with lots of different life experiences to bring to the table. All of these are things that will help you throughout life, in aviation or in any other field. Don't shortchange yourself in a mad rush to get someplace, only to realize that you missed too many good things along the way.
SteveC said:I'm 100% in agreement. This is good advice. Debts and interest will eat you alive. Much, much better to work your buns off at two or three jobs while you stash enough cash for the next rating, then dive in and do it. Alternate as required. Don't be fooled, an extra year or two won't kill your job potential, and it will be so much better when you're working that low paying CFI or regional job and don't have to bear another $400, $500, $600 or more in debt every month. Think about it. Regional pay @ $20,000 per year is $1,666.67 per month gross, $1,000 take home. Subtract $500 for loan debt, $400 for an apartment, $300 for food, and see where we're going here?I would recommend staying away from loans altogether if all possible. I have heard some shady operations on the key bank side of things regarding how they handled the entire ATA fiasco. Its best to stay debt free and pay as you go then you dont have a huge loan to pay off when your done with your training while your only making probationary F/O pay... The intrest is also racking up the entire time you are flying regardless of who you go with. Just best to stay debt free then the money that would go to the loan payment can go to food to fill up your stomach just my .02 though. I think they both have their ups and downs
SteveC said:I'm with B767Driver on this one. If I can afford to make the payments on a loan, I can afford to save the money beforehand and pay cash. It will actually be easier and cheaper, since a loan will cost me huge amounts of interest above and beyond the cost of what I am buying. The only downside, if you want to consider it to be a downside, is delayed gratification. Americans have much to learn from other cultures in this area.
Don't think that I'm coming from a holier-than-thou position, either. I made the mistake of going out on a financial limb when I was in my early twenties, and had a nice new Trans Am repo'd when I was laid off from a sweet paying job with General Motors, and had to work at half the wages that I had been receiving. Been there, done that, ain't going back.
Debt is a monster that just continues to grow. The best way to stop it is to never let it in the front door in the first place. After that it takes even more dedication and hard work to stem the tide, and it is all too easy to get overwhelmed.
<snip>
SteveC said:....a loan from Key Bank <snip> for $48,500 (training, living and a 4 yr degree), with a cosigner (good credit, just haven't had credit long enough)...
Well with a fairly reasonable interest rate of 5.78%...the loan will take my 15 years to pay off (180 months)
I will end up paying Key Bank...$79,399.80 when all is said and done.
Thats roughly $30,899.80 in just interest. I hope my medical doesn't fail me...
WOW thats a lot in interest...never realize how much it is until you actually see it like that.
I don't even have to say anything, do I????
SteveC said:....About your interest...I think you may have made a mistake with that calculation. I think you figured it as being 57% interest by mistake lol.
No mistake. Compound interest spread over many years is a killer. Do a Google search on "Loan Calculators" and plug in some of your own numbers. Maybe it'll get people to think twice about financing flight training (or cars, boats, jet skis....).
SmitteyB, your final interest rate must be a little higher than 5.78%. Here are the results I got using your numbers in one of those on-line calculators:
Loan Payments Calculator
Loan Balance: $48,500.00
Loan Interest Rate: 5.78%
Loan Term: 15 years
Minimum Payment: $50.00
Monthly Loan Payment: $403.53
Number of Payments: 180
Cumulative Payments: $72,634.95
Total Interest Paid: $24,134.95
Note: The monthly loan payment was calculated at 179 payments of $403.53 plus a final payment of $403.08 .
It is estimated that you will need an annual salary of at least $48,423.60 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will devoted to repaying your student loans. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $32,282.40 , but you may experience some financial difficulty.
These results assume that the student is paying the interest charges on any unsubsidized loans and is not capitalizing the interest while in school. If the student is capitalizing the interest, the cumulative payments and total interest charges will be higher than shown here.
Here's my source.
Here is another one:
Number of Monthly Payments 180
Simple Interest Rate 5.78
Principal Amount of Loan $ 48,500
Your Monthly Payment Will Be $ 403.52
Your Total Interest Cost Will Be $ 24,135.11
Minimum annual salary to handle these payments: $ 60,529.00
(anybody notice the recommended annual salaries to handle that amount of loan debt? Want to compare those numbers to CFI or first year F/O wages for fun?)
[/soap box]
SteveC said:The whole purpose of loans is to make money for the lending institution. The purpose of a loan is not to help you learn to fly, or buy a car, or a house. Loans trade your future earnings for the instant gratification of getting something now that you can't afford.I wish that getting a loan wasn't so damn hard. I mean, isn't the whole purpose of loans to help those who can't afford to pay out of pocket for something?
Pay-as-you-go whenever possible.
...If not, then I will have to go ahead and just get all my ratings at my FBO....which I would be happy about just the same, don't get me wrong. But I understand the level of training that I could get at ATP, and I want to be where the best are....I've always been like that
You've been reading the brochures again, haven't you?
(edit to add:
Yeah, yeah, I know......but laziness triumphs over the possible perception of self-indulgent behavior in this case.
