This practice goes back to the early days of aviation, when airplanes had open-cockpits. The instructor-pilot sat in the back while the student sat in the front. In order to get the student's attention, the instructor would tug on the back of the student's shirt.
Since the student is alone when soloing there's no one in the plane to yank on the back of their shirt to correct any mistakes. To symbolize this milestone, the instructor cuts off the back of the student's shirt and marks it up to record the accomplishment.
But, soloing isn't the end of the training; rather, it's about the one third to half-way point to becoming a certified private pilot.
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