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Dec
29
2009
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Posted 14 years 115 days ago ago by Admin
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By Rebecca Wentworth
In November of 2008, a helicopter flight training school in Broomfield, Colorado, received their part 141 Certification, a designation earned through the Federal Aviation Administration (FAA). The process of writing a standardized curriculum, training the Certified Flight Instructors (CFIs), and upgrading classroom facilities was rigorous, but the owners and instructors at this school were convinced that the benefits they would receive through certification would far out-weigh the heavy workload necessary to get there. They anticipated that their students would qualify for career training loans at a variety of banks and lending institutions, that the State of Colorado would allow access to training grants and loans available, and that ultimately federal grants and loans would be available to students who qualify through the Higher Education Act (HEA) of 1956.
It didn’t take long for those beliefs to be shattered. Sallie Mae, the nation’s largest educational lender, had recently ended their career training loans to students at flights schools that were not part 141 certificated. Shortly after the school’s attainment of a part 141 certificate, Sallie Mae stopped adding new schools to their list of eligible institutions, regardless of their certificate status. This school had missed that cutoff by a couple of months. Discussions were then undertaken with several bank officials, including representatives from Key Bank, Wells Fargo, and US Bank, and the conversation was eerily similar with each of them. If the loans were not either backed by the federal government under the Federal Family Education Loan (FFEL) program, or for a school that was degree-granting and fully accredited, the banks were not willing to take the risk on a loan for education.
This left the students at this flight school with very few funding options. One of the most obvious options was to simply have the money in personal assets. This has always been an option for those who are seeking education. If you have the money, or the assets to secure a private loan, there is no need to seek funding from outside sources. A second option was to pay for training with unsecured debt, the easiest of which is credit cards. Although credit card debt is easily available, many programs come with high repayment costs due to the high risk taken by credit card companies. A third option, which is related to the credit card option, is an unsecured personal line of credit. Again, this option represents a high risk for the lender, leading to high interest rates, high origination fees, and steep penalties and fines for late and missed payments. (This last option will be discussed in more detail later, as it has been the primary source of funding for flight students at this school.) The flight school was becoming more and more discouraged.
Introduction
In 1956, the HEA created the FFEL program, which created loans for students who wished to pursue education beyond high school. The most important benefits of this loan program are the cap on the interest rate, currently 6.8%, the ability to defer repayment and interest until the end of educational endeavors, and the backing of the federal government in the quest for repayment. Banks willingly loaned to students with no credit history, poor credit, and no source of income, knowing that even if the students’ schooling was unsuccessful, the government would back them in remuneration in the form of not allowing dispensation of these loans in bankruptcy cases. Ultimately, the government may garnish wages in order to secure repayment of loans that banks prove will not be repaid by the borrower by other means (McLean, 2005).
Flight students have traditionally had a harder time securing funding for their training than students who choose to pursue a more traditional post-secondary education. Helicopter-pilot hopefuls have either been blessed with personal assets to use for training costs, or they have adopted a pay-as-you-go strategy of paying for each segment of training as they amass sufficient funds. This often leads to a prolonged training period, a situation that can have its own drawbacks. This truth, in a society that nearly demands training beyond high school in order to succeed financially, means that the practice of only loaning educational funds to college and university students discriminates against students who either would not be successful in a traditional college environment or who decide that such an education does not fit their needs and dreams. It is time for the federal government to recognize the disparities in current educational funding practices, encourage post-secondary training for all hopeful students regardless of their educational goals, and support training facilities that are certificated by state and federal government agencies.
Current Funding Practices
Although today’s financial community, specifically those companies that specialize in consumer lending, is in a severe crisis, not much had changed in the basics of what was higher-education financing until President Obama’s recent reform efforts. Early in the calendar year in which a student intends to start college, s/he will, with the help of family financial documents, complete a Free Application for Federal Student Aid (FAFSA). Submitting this form sets into motion some of the most important actions for a student entering post-secondary training. Using a formula that takes into account family income and assets, family dynamics, number of children in college, as well as other factors, administrators with the FAFSA program determine just how a student is expected to pay for an education.
Obviously, the most desirable money is that which does not need to be repaid: scholarships and grants. Students can earn scholarship monies for academic performance, membership in certain groups, promises to study in specific curricula, etc. Additionally, “free” money can come in the form of Pell grants, funding given to students from low socio-economic situations. These types of funding are intended to help students who have shown academic promise or who have little or no other source from which to draw educational funds. Low-income families have long relied on scholarships and grants to secure post-secondary educations for their children, helping to break the cycle of poverty and providing one of the primary ingredients in the recipe for “a better life.”
The next level of desirable money for college comes in the form of student loans guaranteed and subsidized by the federal government under the FFEL program. According to McGuire (2009) of the New America Foundation, $67 billion in federally backed student loans, called Stafford Loans, are generated under the FFEL program. These loans are desirable to students and their families due in part to the low ceiling on interest rates set on the loans; currently this rate is set at 6.8%. Additionally, the government is active in both securing loans for students, which are made without credit checks, and in securing repayment of loans, which are extremely difficult to get discharged through bankruptcy proceedings (Making Student Loans More Reliable, 2009). Finally, the loans are offered interest free for students and parents while a student is in school. Traditionally, the interest payments have been made by the federal government as an investment in the nation’s future. With President Obama’s reforms, these loans will be taken by the student directly from the federal government, with interest still deferred until the end of their education.
The next step down the list of available college funds is the unsubsidized Stafford and Plus loans. These loans are very closely related to the subsidized loans, with the major distinction being that the federal government does not make interest payments while a student is in school. The interest, the rates of which are capped at 6.8% and 8.5% respectively, can either be made in monthly payments by the student or his/her parents, or it can be deferred to the end of the student’s educational career. Deferring interest payments means that the interest will be capitalized when the student’s repayment begins, adding to the overall cost of the loan, and the education for which it paid. Still, the interest is capped at a rate which is considerably lower than the rates for current private loans.
Finally, parents and students can opt for private educational loans. These controversial private loans are intended for the payment of student expenses, and students and parents can only borrow as much as is legitimately necessary for school. In an arrangement that sounds similar to federally-sanctioned loans, borrowers can also opt to defer interest payments until after college is over, at which time the interest amount is capitalized and becomes part of the principle. This, however, marks the end of the similarities between the two types of loans.
The differences are much more striking that the similarities and have been the focus of much criticism and debate since their inception, (Paying the Price, 2008). On the surface, the primary distinction in Stafford loans and private loans is the interest rates. Whereas federally-backed loans are controlled in the interest they are able to charge, private lenders are free to charge interest rates based on a student’s credit history; in many instances these rates have climbed as high at 18%. Additionally, these private loans are written to be sold to investment companies, so most are written with limitations and restrictions that heavily favor the note holder, leaving the borrower with few avenues for assistance when discrepancies or misunderstandings arise. These clauses make the loans highly desirable to investors since they often spell out heavy fines and stiff penalties for being in default. Default, however, in some cases is defined as defaulting on other loans or missing a single payment on any loan with the same lending company. Additionally, these loans are not eligible for consolidation with other educational loans, leading to a graduate having to make payments to several companies at the same time instead of one payment to one company.
Although the funding options for college and university student hopefuls may seem overwhelming, these students, almost without exception, are able to secure funding to help them realize their dreams of higher education. The same is not true for all people who desire post-secondary schooling. For students whose career dreams lay in the field of aviation, there is very little money available. There are college and university programs, such as the one at Denver Metropolitan State College, that allow a student to work toward passing the written test required of prospective pilots while studying for a bachelor’s. Very few, however, offer flight training, and those that do, such as Utah Valley University, still require that students be working toward a post-secondary degree. This degree is often not the goal of the student, but can be the only way to secure any funding for flight training.
At one time student pilots were able to apply for career training loans, such as the ones offered by educational-funding-giant Sallie Mae.
Although these loans often required that the students secure a co-signer for the loan and carried high interest rates, they also offered deferred interest and payment options, a necessity for students trying to train full time. In late 2008, however, the crisis in the lending community caused Sallie Mae to retract its offer of funding to students attending any training center that was not already listed as a partner with them. Subsequently, even loans with partner centers were retracted and Sallie Mae refused to consider a school’s certification status as grounds for adding them to the “list”. Additionally, because Sallie Mae was unwilling to offer such loans, many other banks and loan companies followed their lead and would not offer private educational loans to flight students.
With this valuable funding tool removed, flight schools are again forced to explain to prospective students that the only means of funding available is personal lines of credit, the availability of which is dependent on credit history and income. For many students, even securing the loan with a cosigner is not enough to convince lenders to gamble on their alternative educational plans, making it impossible to pursue training. When students are granted these private loans, the terms are often so heavily skewed in favor of the lender that borrowers have difficulty with repayment. This type of loan does not carry with it deferred payments or interest, meaning that from the day the loan is originated, interest is accruing and payment schedules begin immediately. Students, then, must work full time jobs in order to make their payments, causing a situation that slows the training process. Additionally, lenders may require heavy origination fees, assess large fines for late and missed payments, and ultimately charge a loan as defaulted for unreasonable causes. Meanwhile, flight students’ peers who chose traditional schooling at a college or university are enjoying the benefit and support of the federal government and its lending programs.
Post-Secondary Training Options
Until recently, there were two types of high school graduates: college bound and non-college bound. This was such a universally known “truth” that high schools would track their students based on whether or not they would most likely seek post-secondary education, and those tracks were often titled “college bound” and “regular”. Today, more students than ever before are seeking a college education. This is due in no small part to a shift in the beliefs about what are respectable careers and the knowledge that college graduates traditionally out earn their age peers who have no college education.
Additionally, many students are pursuing training after high school that is outside the halls of academia. It is no longer accepted that students can earn a sufficient wage at a job that does not require any training after high school, but not all young people look forward to spending an additional four years learning material that they find irrelevant to their chosen career path. Instead, students are entering schools and training centers that offer a wide variety of specialized training in the fields of health care, technology, aviation, real estate, insurance, etc. Although candidates for jobs in these fields require training not offered in the kindergarten through 12th grade system, they do not need the diverse education that is offered in universities. What they do need is high quality training from certificated schools that have the ability to give them the specialized knowledge and skills necessary in whatever field they chose to enter.
Part 141 Flight School Certification
In the field of aviation, all training centers work under the strict guidance of the FAA. Schools can either choose to operate under Title 14 Part 61 of the Code of Federal Regulations and submit their candidates to designated pilot examiners, who are subjected to rigorous training and testing before being issued a letter of authorization to provide testing to pilot candidates, or they can operate under Title 14 Part 141. Part 141 requires that schools write a standardized curriculum and submit it for review by FAA officials. Once the curriculum is accepted, the school undergoes the first site inspection, during which FAA officials determine the acceptability of the training facilities and aircraft. Additionally, aircraft that are used in Part-141-certificated schools are subject to strict maintenance guidelines, ensuring that the aircraft are safe for operation by students. Finally, although any aviation training center can be inspected without notice, Part 141 schools have rigorous guidelines that they conform to and on which they can be inspected. Failure to comply with FAA guidelines can mean the revocation of a school’s certificate.
Because schools have been judged and deemed acceptable by experts in the employ of the federal government, Part 141 schools do enjoy a few benefits. First, the schools are allowed to train and employ their own flight examiners. The examiners are still subjected to the training and indoctrination required by the FAA, but as an employee of a school, they are readily available for examinations at the student’s convenience. Additionally, student pilots can, if properly fluent in all required flight maneuvers, opt out of up to five hours of the flight training that is required of Part 61 students. This option potentially saves the student hundreds of dollars for each certificate or rating s/he obtains. Finally, the student is assured that their training is standard and follows a program that has been approved by the FAA. This provides some assurance to the student that the training s/he receives is of a high quality and will lead to eventual success in their career.
These benefits, however, do not provide any assistance for the single largest factor stopping pilot hopefuls from pursuing their dreams: funding. Without funding many people who wish to have careers in aviation are simply not able to access the training that is necessary, forcing some to permanently dismiss their goals of flight.
Benefits of Aviation Careers
Although flight training and aviation careers are not for everyone, there is an identifiable demographic for pilot hopefuls that helps schools determine the level to which a potential student may be successful. According to R. Fyola (personal communication, March 12, 2009) a good candidate for flight school is intelligent but may have grades that do not reflect that intelligence. Potential pilots’ teachers may describe them as not living up to their potential, fidgety, or bored. These students often perform better in hands-on and active classes such as lab, shop, and phys-ed. With these characteristics, many of these students are not interested in a university education, and most would not be successful if they did attempt one. Instead, they will seek active, hands on careers that often fail to help them realize their potential. Flight training can emphasize a student’s talents while offering a career that is anything but sedentary.
Professional pilots also enjoy higher pay than persons with no post-secondary training. Helicopter pilots with adequate training and experience can secure jobs in a variety of environments, often faster than their peers with college degrees. Once a helicopter pilot student obtains all of the necessary ratings, a process that takes 18 to 30 months, s/he will take a job as an instructor, gaining valuable experience and accumulating the flight hours necessary to be eligible for industry jobs. (The number of flight hours necessary for entry-level jobs is dependent upon the market. Pilots can sometimes secure jobs fighting fires and flying for the oil industry as second in command pilots with as few as 600 flight hours logged. At other times, companies will require 2400 hours or more to be employable.) Helicopter pilots can look forward to starting pay that is comparable with their college educated peers within as little as three years of beginning their training.
Higher Education Act of 1956
According to the HEA of 1956, 34 CFR 668.8 (d), proprietary schools of post-secondary vocational training are eligible for federal educational funding in any of three categories.
The first of these categories requires 15 weeks of training, consists of 600 clock hours of training, provides training for employment in a recognized occupation, and enrolls students who have not completed the equivalent of an associate’s degree.
The second category requires 10 weeks of instruction in a specified term, consists of 300 clock hours of training, provides training for employment in a recognized occupation, and be a professional or graduate program that admits only those who have completed the equivalent of an associate’s degree.
The third category, which is for consideration for the FFEL or Direct Loan programs only, requires 10 weeks of instruction in a specified term, consists of not less than 300 but no more than 600 clock hours of training, provides training for employment in a recognized occupation, admit some students who have not completed the equivalent of an associate’s degree, and fulfills completion and placement requirements, (Office of Post-Secondary Education, 2003).
Most flight training centers, with a few notable exceptions (Stephens, 2009), qualify for federal financial aid under either the first or the third of these categories. That being said, if you ask officials within the Office of Postsecondary Education they will respond that flight schools are not eligible for federal financial aid (D. A. Bergeron, personal communication, April 22, 2009). Instead, the belief is that flight time is not part of the training program, eliminating the hours spent in practical application of theoretical skills taught in the classroom from being used to calculate the costs of the program and the hours of training in the program. It seems counter intuitive that a program that intends to teach pilots to fly would be expected to do so without offering many hours of hands-on practice. Obviously, one would not expect a physician to practice medicine or a lawyer to practice law without first having some practice in the field.
Policy Draft
What follows is a draft of what could potentially be adopted as an interpretation of the current Higher Education Act of 1956.
I, Arne Duncan, Secretary of Education of the United States of America, do hereby issue the following reinterpretation of the Higher Education Act of 1956 and the appropriate and related issues of funding through Pell Grants, Stafford subsidized and unsubsidized loans, the Family Federal Education Loan program and the Plus loan program.
1. Purpose
This reinterpretation provides guidelines for officials within the above stated offices and programs for determining the eligibility of proprietary institutions of higher education and postsecondary vocational institutions, specifically Title 4 of the Code of Federal Regulations Part 141 certificated air agencies, for student funding through those same programs.
2. Directives
A. Identification of Eligible Flight Schools
This statement requires that in order for flight schools to be eligible for student federal financial aid they conform to the following guidelines, as enumerated in 34 CFR 668.8 (d) and (i).
1. (d) requires the following:
a. 15 weeks of instruction, 600 clock hours, training for employment in a recognized occupation, admission of students who have not completed the equivalence of an associate’s degree; OR
b. 10 weeks of instruction, 300 clock hours, training for employment in a recognized occupation, be a graduate or professional program, admission of students who have completed the equivalence of an associate’s degree; OR
c. 10 weeks of instruction, 300 to 600 clock hours, training for employment in a recognized occupation, admission of some students who have completed the equivalence of an associate’s degree, provide evidence of 70% completion rate and 70% placement rate.
2. (i) requires uninterrupted certification by the Federal Aviation Administration as a Part 141 Air Agency.
B. School Identification Code:
This statement requires that flight schools that have been identified as eligible under the guidelines listed in (A) be issued a school identification code for the purposes of use on the Free Application for Federal Student Aid, reporting statistics, and documentation.
C. Marketing Allowances
This statement requires the following allowances for marketing of eligibility status for schools that have been identified under the mandates of (A) of this policy interpretation.
1. Air Agency Certificated flight schools will be identified in electronic and print sources as eligible schools. These schools will be identified alphabetically by state with a listing of their official school identification code.
2. Eligible flight schools will be allowed to advertise to prospective students their status as fully certificated institutions able to receive student funding through the federal financial aid programs.
3. Any and all marketing privileges allowed to degree-granting, accredited institutions will be available to eligible flight schools.
D. Flight schools, under this statement, will be eligible for all types of educational funding that are currently available to students at degree-granting, fully accredited colleges and universities, and will be eligible for any new funding sources that are subsequently created by the federal government. These funding programs include but are not limited to the following.
1. Federal Pell Grants
2. Stafford Subsidized Loans
3. Stafford Unsubsidized Loans
4. Federal Family Education Loan program
5. Plus loan program
Conclusion
Part of the American Dream within the last 50 years has been to secure a post-secondary education in order to enjoy a career that is fulfilling and an income that allows enjoyment of a comfortable lifestyle. With the advent of the information age, much of the advanced education in this country has been in form of college and university degrees, and many career paths require such training. Some industries, however, hold the promise of salaries equivalent to or higher than those secured by college graduates, without the lengthy training and with course work that more closely adheres to the interests of the students. This is the case in flight training. Often within three years of starting training, pilots can secure employment in tourism, law enforcement, oil production, etc., without having to sit in classes they find irrelevant. The primary hurdle for pilot hopefuls is funding, just as it is for students who aspire to university placement. The federal government needs to recognize Air Agency Certificated flight schools as legitimate centers for training and offer to their students the funding that is available through the HEA of 1956.
Sources Cited
Making Student Loans More Reliable and Funding Larger Pell Grants. (2009). President
Obama’s Fiscal 2010 Budget Overview: A New Era of Responsibility: Renewing
America’s Promise. Retrieved April 14, 2009 from
McGuire, M. E. (2009, March 31). The Future of Federal Student Loans. New America
Foundation Event Transcript. Retrieved April 14, 2009 from
http://www.Newamerica.net/publications/resources/2009/future_federal_student_loans
McLean, B. (2005). When Sallie Met Wall Street. Fortune 500. retrieved April 14, 2009
from
Office of Postsecondary Education. (2003). Higher Education Act 34 CFR 668.8.
retrieved April 27, 2009 from
Paying the Price: The High Cost of Private Student Loans and the Dangers for Student
Borrowers. (2008, March). Boston: National Consumer Law Center.
Stephens, E. (2009, March). Silver State Helicopters: What Really Happened. Rotor &
Wing Magazine, 43(3) p. 50-53.