Why Hiring Mechanics with Large Student Loan Debt just doesn’t work

United States student loan debt sitting at $1.5 trillion dollars and growing. This pending meltdown receives frequent coverage in the media and articles touting alternative educational models such as “free community college,” and shorter degree programs appear in the headlines daily. Since launching American Diesel Training Centers, we’ve met with upwards of 150 employers. From the largest companies in the United States, to tiny shops with 2 bays. We’ve collected mountains of data and feedback. We’ve also produced close to 200 entry level mechanics and have tracked their progress, including wages and longevity with their hiring employers. We believe, and have the data to prove it, that student loan debt servicing, of any size, is the largest determinant as to whether and employee stays with their first employer, or moves on. We hear the phrase all the time. “Chasing the dollar.”

Tuition. The Albatross

For those reading this who need diesel mechanics and other skilled trades to power your organization, you generally have two choices when hiring for that entry level position.

A. You hire someone who attended or graduated from community college.

B. You hire someone who graduated from a technical school that focuses on a specific discipline(s) of study. A few examples are Universal Technical Institute, Lincoln Tech, University of Northwestern OH. You can add our program, American Diesel Training Centers into this category.

But I Digress for a Minute.
It’s all about Input The real problem and you can read about it in one of my previous articles is that schools are producing roughly 20% of mechanics that industry needs on a yearly basis. When demand exceeds supply, wages go up and it puts the buyee, in this case a diesel mechanic in a position of strength. According to a United States Government Accountability Office report (2011,) 96 % of students at For Profit Colleges apply for student loans, versus 13% at community colleges. Sessions (2011) says that nearly all students at for profit colleges acquire student loan debt, even when they do not earn a degree or additional earning power as a result of their courses.

Below are published estimates of tuition and fees for the three largest For-Profit Technical Schools.

Universal Technical Institute: $43,800. According to Trainer (2015,) UTI costs almost $50,000 to attend.

Lincoln Tech: $42,835-Does not include room and board.

University of Northwestern OH: $27,200/Tuition+$7084 Room and Board/Total=$34,284 UNOH is a residential campus in Lima Ohio and the vast majority of students life there.

Some students do in fact qualify for grants and scholarships. It is our experience that very few students receive more than $5,000-$7,000 a year in both categories combined. In its 2017 annual report, Universal Technical Institute stated that it derived 71% of its revenue via Title IV funding. Title IV Funding are Pell Grants, SEOG Grants, Perkins Loans and student loans. Lincoln Tech, according to its 2017 annual report derived 78% of its revenue from Title IV Funding. The purpose of this article is not to debate the merits of whether tuition to any of the above schools is overpriced, or fair. It is what it is. Students are free to choose to attend or not to attend one of those schools. Our argument is that graduates of these programs are saddled with unsustainable versions of student loan debt. Their debt may not become your debt, but it becomes your problem. And its costs are significant. We could make the exact same case for students who attend overpriced non-profit higher education programs who don’t effectively prepare students for the workforce. (My son attends Ohio State and has to take a course on Grimm’s Fairy Tales. Not kidding.)

Here’s why student loan debt becomes your problem.
We track these metrics and the numbers are eye popping. Financially, there are two types of graduates who complete our program.

1. Those who fund their own training. This could be via cash, payments or a student loan via a private lender. Our tuition is $7,500. Very few of our students can afford to pay cash. Our student loan approval rate is 29%. We either turn 65% of applicants away or find employers willing to sponsor them. The other 6% pay cash.

2. Those whose training is funded via a specific employer, meaning an employer identifies a student and pays for their tuition. After one year of employment, the retention rate of students who had their training funded by an employer is 90%

The retention rate for students who fund their own education: 38%
I’ll give you a great example. Seven of our graduates have gone to work for a national company. This company is one of the largest privately held companies in the United States. It is a GREAT company. These were all excellent people. They all funded their own training. ALL seven people left for jobs at other companies within 6 months.

Why? We’ve spoken to each of them and it boiled down to money. And since these people had all funded their own education, its hard to blame them. Here’s the converse of the above example. Two independent shops here in Columbus have hired six of our graduates and paid for their training at American Diesel. As part of the hiring process, they put a few stipulations in place. 1. The new employee had to commit to working for the company for a year, in exchange for a 100% scholarship. 2. Their initial starting salaries were at or below what we could consider market rate BUT, they were given handsome raises if they completed milestones throughout that first year. 3. They were provided solid additional training and mentorship once they got on the job. ALL six of those people are still with their original employer. Put yourself in their shoes

Imagine your student loan debt is $40,000. You go to work for an employer making $18.00 an hour. There are jobs everywhere. An employer down the street offers you a $2.00 an hour raise. What are most people going to do? They’ll take that raise and go make an extra $4,000 a year. Because they literally need it to survive.

Quick Household Budget (Month) Assumes $18.00 an hour, which is $36,000/Year:

Take home pay: $1,941 Student Loan: $424 (Assumes $40,000 in loans with 10-year payoff at 5% annually)

Rent: $496 (Average rent in U.S. is $992. This assumes a roommate)

Car: $300 (The average car payment in U.S. is actually $523)

Food: $220 (Average food cost in U.S. is $2,641/year)

Utilities: $150 (Average utilities cost in U.S)

Fuel: $211 (Assumes you drive 500 miles per month at .42cents per mile)

Left over: $180 Savings Entertainment Clothes Healthcare Dependents

As you can see, the money is mostly gone before we get to savings, entertainment, healthcare, etc. This is why people chase the dollar. The problem with our industry is not a training problem. It is a funding problem. And the only way out of it is for employers to become part of the solution.

The math is simple and straightforward.
-According to SHRM, it costs $4,000 to recruit and $8,000 to onboard. -According to an Association of Equipment Dealers study, it costs a company $1,000 a day for every day there is not a working mechanic. This is the same for dealers, fleets and independent shops. -This means that in 45 working days, which is the typical job opening, it will cost your company $53,000 NOT to have a working mechanic.

A Significantly Better Retention Rate
I ask companies all the time if they know what turnover costs them. Virtually none can tell me. I also see companies wasting tens of thousands of dollars on job board postings.

The solution to this is quite simple.
Reduce the debt servicing burden on your employees. Why do companies offer tuition reimbursement programs? It essentially guarantees that someone will leave. But companies don’t offer options or programs for students to service debt. And the bigger the debt, the faster they will chase the dollar. I guarantee it.
Grow your own technicians. At American Diesel, we’ve proven that people can be very successful with significantly less “education or training” than what is found in your traditional technical school. By the way, the programs at those schools are long because in order to take Title IV funding from the government, they have to be a certain amount of hours. Both classroom and lab time.
Provide carrots and sticks to new employees. Create your own training program. Help students service debt. Offer salary and development milestones. But don’t do it for nothing! Ask your new employees to put some of their skin in the game! You’ll be amazed at their response.
Provide solid mentorship and additional training opportunities. Several of our people left their first jobs because they were just “thrown into the fire.” Your open positions are costing you a fortune. But it doesn’t have to be that way. And the key to most of it is developing quality employees with no debt burden.
About:

Tim Spurlock and Chris Ellis founded American Diesel Training Centers in Columbus OH. In less than two years, ADTC has become the 2nd largest producer of diesel mechanics in a five state area of Ohio, Michigan, Pennsylvania, Kentucky, West Virginia. Its graduates work for more than 75 companies. In summer, 2018 American Diesel launched its Ramplify system, which allows them to embed inside of companies and perform recruiting, training and development on site, anywhere in the United States. American Diesel Training Centers accepts no government aid or subsidies. It is 100% privately funded.

References:
McGuire https://scholarship.law.duke.edu/cgi/viewcontent.cgi?referer=https://en.wikipedia.org/&httpsredir=1& article=3355&context=dlj
Angulo https://books.google.com/books?id=Q8qnCwAAQBAJ&pg=PR4#v=onepage&q&f=false

US Dept of Ed https://books.google.com/books?id=nVM3tUhQeqUC&pg=PA68&dq=forprofot+colleges+and+universities&hl=en&sa=X&ei=NCW7VJe6G5KPsQTQ4IHoDg&ved=0CC0Q6AEwAQ# v=onepage&q=for-profot%20colleges%20and%20universities&f=false
GAO https://www.gao.gov/products/GAO-12-150

 

Author: Tim Spurlock, American Diesel Training Centers

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