Problems at a single company that finances student loans for private truck driving schools sent shock waves through the truck driver training industry.
Earlier this year, Wilmington, Del.-based Student Finance Corp. stopped accepting new applications for truck driving student loans. In addition, the company missed several large payments to truck driving schools. As a result, some schools that relied heavily on the company were forced to shut down - some temporarily, others likely permanently. Many students were sent home or turned away when they arrived for training. The flow of newly graduated truck drivers slowed for some fleets.
The situation brought comparisons to the loan crisis of the early '90s, when government loans for most truck driver training programs dried up because they couldn't meet new federal requirements for course length.
Sources in the truck driver training industry say SFC was aggressive in its lending policies, offering loans to students that other financing companies considered a poor risk. While that filled a valuable need in the industry, it also meant high interest rates for students, and ultimately could have been the reason SFC ran into problems.
"A lot of lending companies are looking for 'A' and 'B' credit type of people," says Joe LaBarge, owner and president of U.S. Truck Driver Training School in Detroit, who used SFC along with other finance companies. "Let's face it, people who want to go to truck driving school … are typically low-income people trying to better their lives. They don't have 'A' credit. They're more likely to default on loans."
Industry sources say SFC ran into problems when an insurance company stopped providing coverage for the loan packages because of the high default rates.
The reason SFC's problems wreaked such havoc is that many schools put all their eggs in one basket, relying exclusively on SFC to give loans to their students. One estimate puts the number of schools financed by SFC at 100 to 200 nationwide, although some have been hit harder than others.
Two chains that were significantly affected were Franklin Career Centers, based in Louisville, Ky., and MTA Training Centers, Elizabethtown, Pa. In March, the two agreed to merge.
According to published reports, before the financing crisis Franklin was graduating 450 to 500 students a week, with 90 percent of those students financing their training with SFC loans.
MTA reportedly cut its tuition by a third in response to the crisis, as well as offering cash- and credit-card specials and mothballing some schools. MTA Chief Financial Officer Keith Armbrust acknowledged that the company "downsized quite a bit in light of what's happened with SFC," but would not say exactly how many of MTA's 16 schools were operating in early April. A number of schools will be reopened when they get financing back in order, he said, although some will close permanently.
Some in the truck driver training industry criticize the way many schools used SFC to finance huge tuition and living expense packages for short-term training courses. These were typically two-week programs, designed to get students to pass the Commercial Driver's License exam. Some call them "CDL mills." They cost students in the neighborhood of $10,000, not counting years of interest, which could easily add up to more than $30,000 in total debt over the life of the loan.
"Some schools got greedy, and now everyone is paying for it," says LaBarge.
There are many schools that offer far more extensive training for less than half the price. For instance, the 76 schools certified by the Professional Truck Driver Institute offer at least 104 hours of classroom time and 44 hours of behind-the-wheel training. Many publicly funded schools, such as those at vocational technical schools and community colleges, offer programs starting below $1,000.
One of those schools is SAGE Technical Services, a PTDI-certified program that offers one-on-one training. President and CEO Greg Aversa says they tried using SFC, but dropped them several years ago. "It was just not something I wanted to lead our students toward," he says. "Our schools work hard on protecting the students, so they're not having to borrow outrageous amounts of money to get this kind of training."
Michael O'Connell, executive director of the Commercial Vehicle Training Assn., said very few of his members were affected by the SFC crisis. His 155 private truck driver training school members are encouraged to have three to five different financing sources.
Publicly funded schools also typically were not affected, and even experienced a surge in applications as a result of the situation. However, a few that relied on private programs to provide training were left looking for a replacement.
Although SFC failed to return calls for comment, LaBarge says faxes and memos to his school from SFC indicate the company is "restructuring." Published reports cite a March 6 letter to truck driver training schools, saying the company would make good on the money owed to schools after arranging new financing.
However, many schools found the lack of specifics frustrating. Some schools reported difficulty reaching SFC for explanations. There is also concern, LaBarge says, that following this restructuring, SFC may not be as liberal as before with its student loans.
If you are having problems with driver training due to the closing of these schools, try contacting the Commercial Vehicle Training Assn. (703-728-8600), the Association of Publicly Funded Truck Driver Schools (go to www.napftds.org for a list of schools), or PTDI (703-838-8847). All of these still have schools going strong and can likely help place students.
In the meantime, some predict that the crisis could actually be a good thing for the truck driver training industry in the long term. "Just like the loan crisis in the early '90s, where the strong schools survived," LaBarge says, "you shake out all the bad apples. There's always a silver lining."
Earlier this year, Wilmington, Del.-based Student Finance Corp. stopped accepting new applications for truck driving student loans. In addition, the company missed several large payments to truck driving schools. As a result, some schools that relied heavily on the company were forced to shut down - some temporarily, others likely permanently. Many students were sent home or turned away when they arrived for training. The flow of newly graduated truck drivers slowed for some fleets.
The situation brought comparisons to the loan crisis of the early '90s, when government loans for most truck driver training programs dried up because they couldn't meet new federal requirements for course length.
Sources in the truck driver training industry say SFC was aggressive in its lending policies, offering loans to students that other financing companies considered a poor risk. While that filled a valuable need in the industry, it also meant high interest rates for students, and ultimately could have been the reason SFC ran into problems.
"A lot of lending companies are looking for 'A' and 'B' credit type of people," says Joe LaBarge, owner and president of U.S. Truck Driver Training School in Detroit, who used SFC along with other finance companies. "Let's face it, people who want to go to truck driving school … are typically low-income people trying to better their lives. They don't have 'A' credit. They're more likely to default on loans."
Industry sources say SFC ran into problems when an insurance company stopped providing coverage for the loan packages because of the high default rates.
The reason SFC's problems wreaked such havoc is that many schools put all their eggs in one basket, relying exclusively on SFC to give loans to their students. One estimate puts the number of schools financed by SFC at 100 to 200 nationwide, although some have been hit harder than others.
Two chains that were significantly affected were Franklin Career Centers, based in Louisville, Ky., and MTA Training Centers, Elizabethtown, Pa. In March, the two agreed to merge.
According to published reports, before the financing crisis Franklin was graduating 450 to 500 students a week, with 90 percent of those students financing their training with SFC loans.
MTA reportedly cut its tuition by a third in response to the crisis, as well as offering cash- and credit-card specials and mothballing some schools. MTA Chief Financial Officer Keith Armbrust acknowledged that the company "downsized quite a bit in light of what's happened with SFC," but would not say exactly how many of MTA's 16 schools were operating in early April. A number of schools will be reopened when they get financing back in order, he said, although some will close permanently.
Some in the truck driver training industry criticize the way many schools used SFC to finance huge tuition and living expense packages for short-term training courses. These were typically two-week programs, designed to get students to pass the Commercial Driver's License exam. Some call them "CDL mills." They cost students in the neighborhood of $10,000, not counting years of interest, which could easily add up to more than $30,000 in total debt over the life of the loan.
"Some schools got greedy, and now everyone is paying for it," says LaBarge.
There are many schools that offer far more extensive training for less than half the price. For instance, the 76 schools certified by the Professional Truck Driver Institute offer at least 104 hours of classroom time and 44 hours of behind-the-wheel training. Many publicly funded schools, such as those at vocational technical schools and community colleges, offer programs starting below $1,000.
One of those schools is SAGE Technical Services, a PTDI-certified program that offers one-on-one training. President and CEO Greg Aversa says they tried using SFC, but dropped them several years ago. "It was just not something I wanted to lead our students toward," he says. "Our schools work hard on protecting the students, so they're not having to borrow outrageous amounts of money to get this kind of training."
Michael O'Connell, executive director of the Commercial Vehicle Training Assn., said very few of his members were affected by the SFC crisis. His 155 private truck driver training school members are encouraged to have three to five different financing sources.
Publicly funded schools also typically were not affected, and even experienced a surge in applications as a result of the situation. However, a few that relied on private programs to provide training were left looking for a replacement.
Although SFC failed to return calls for comment, LaBarge says faxes and memos to his school from SFC indicate the company is "restructuring." Published reports cite a March 6 letter to truck driver training schools, saying the company would make good on the money owed to schools after arranging new financing.
However, many schools found the lack of specifics frustrating. Some schools reported difficulty reaching SFC for explanations. There is also concern, LaBarge says, that following this restructuring, SFC may not be as liberal as before with its student loans.
If you are having problems with driver training due to the closing of these schools, try contacting the Commercial Vehicle Training Assn. (703-728-8600), the Association of Publicly Funded Truck Driver Schools (go to www.napftds.org for a list of schools), or PTDI (703-838-8847). All of these still have schools going strong and can likely help place students.
In the meantime, some predict that the crisis could actually be a good thing for the truck driver training industry in the long term. "Just like the loan crisis in the early '90s, where the strong schools survived," LaBarge says, "you shake out all the bad apples. There's always a silver lining."
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