Career Starter Loan

Discussion in 'Air Force Academy - USAFA' started by haleym, Apr 2, 2015.

  1. haleym

    haleym Member

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    Over the past couple of years, I have been considering whether or not I want to take the loan offered to cadets/midshipmen (who are juniors) by Navy Federal/USAA. After careful deliberation, I have decided that I would like to take it for several reasons: to pay off a student loan that I have, buy a used car for under 10k, have money for the class ring that I would like, and invest the rest of it. My question for grads (who have or have not taken the loan) is, is this a good plan? How did it turn out for you, and (for those who took it) were you able to pay it off without a problem? I'm trying to determine what I'm in for in the future, especially as someone who has not handled this kind of money before. Thank you for your help!
     
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  2. MJP

    MJP Member

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    What did your parents say?
    Mine always told me that if I don't need to go into debt, don't go into debt. Cars are expensive and the insurace costs don't start until you buy it and can be more than $100 per month getting started. Gas, registration, repairs etc so plan for more than just 10K.

    Is the student loan a subsidized loan or not? What is the interest rate on the new loan vs. the old loan? Only pay off one with the other if it will save you money long-term over the life of the loan...don't trade lower payments for a longer term as you may end up paying more.

    Investments may or may not pay a return for you so you have to be prepared for that as well.

    Does the Academy have financial counselors that can run numbers on various scenarios for you? If yes, and they are not part of the company lending you the money, you may want to talk with them to see. USAA is a good company, but any lender will make money off you. You just have to have all the facts before you can decide if the cost of the money is worth it.
     
  3. Pima

    Pima Parent

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    Everyone has very different opinions when it comes to the loan.

    I would think about putting money aside that is easily available. IE not in an IRA if that is the only money you can due to student loans and purchasing a car. Here are my reasons:
    1. It costs money to set up your 1st home
    ~ Rental deposits, cable, utilities, furniture, linens, pots/pans, etc. and don't forget that 1st commissary bill. Food necessities, such as TP, milk, sugar, trash bags, aluminum foil, ziploc containers, spices add up very quickly and that doesn't include splurges like cereal or ground meat.
    ~~ Our DS lived in the Qs, so all he needed was linens, pots and pans plus food, AND yet, he still forked out @800. If he lived of base than it would have been much more due most rental units require the 1st and last month deposit. That could be 1000 more before you buy a bed.

    2. You pay first, and then get reimbursed.
    ~ Let's assume you live in Oregon, but your first station is Florida. The military will determine how many days it will take to travel. Upon arrival and in processing they will start the reimbursement process, but all of those days of travel (hotel, food, gas, tolls, etc) are on your dime... maybe for weeks.
    ~ If you live in the base hotel, while awaiting a Q or a rental than you will be required to pay for that, most likely the Finance office will not catch up fast enough to pay that bill. Again, you will be out of pocket first.
    ~~ Our DS according to the AF went from VA to TX. It was a 3 day travel. He stayed in the base lodging until he moved into the As, 10 days later. He had to pay that lodging bill before his DLA (Dislocation Allowance) and his TLA (Travel Allowance) showed up in his banking account. It took about 4-6 weeks to be reimbursed.

    Finally, I don't know the terms of your student loan or the amount owed. Most are 180 day delay after graduation. What is the interest rate? 3% over 10 years? If you don't pay off that student loan, and save the money for setting up your first home, since it is a 180 day delay you can take whatever is left over and pay the loan down. Whereas if you pay off that loan and have no money to set up your home or paid on credit cards to move to your first assignment you might be paying 3x the amount on your credit cards.
     
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  4. Pima

    Pima Parent

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    Xposted with MJP.

    I am a parent, but I concur with him.

    Our DS took only 10k. He placed 5k into an IRA and 5K into savings. He purchased a new car for 15k, 0% interest.

    He is now a pilot, AFROTC grad that took USAA loan. It was his decision on the loan, but we raised him to read the fine print. USAAs fine print states if you leave before the military commitment the APR goes up a lot! I think the fine print said APR +9%.
    ~ AF has @ 65%+ retention. If he busted IFS or UPT they could have released him and his starter loan via USAA would have hit 20%.
    ~~ It was his fear.

    There are great used cars, I am going to say this:
    ~ Our DD, not military, needed a car and decided she would buy a used car around the same price. We purchased a bottom line new car because car dealers offer 0%.
    ~~ Our DS did the same. As a college grad and a military member he got a brand new car.
    ~~ Have you investigated how much you can get for 10k?
    ~~~ Mileage on the car. Warranty offered? Buy a new car and everything is covered, including tires for years What about that used car?
     
  5. haleym

    haleym Member

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    The issue (money wise) with buying a new car is that it loses a lot of its value within the first four years, and for two of those I won't be making a car payment. This will also be my first time owning a vehicle, and I decided an 07/08 model SUV (most likely Ford or Toyota) would suit my needs the best, although I will say that I do have a lot more research to do when it comes to vehicles! Luckily, I have a few months to do so, including deciding whether or not I should really get one. Pima, did your son have a job in addition to school? A concern that I have is the fact that I do not yet have the income to make a payment on a car, new or old. Is that a bad thing? Regardless of the model, I will probably be driving this car until it dies. After all, it's just four wheels and a box that takes you places.
    The loan itself has an interest rate of a little over 1% given that all things go according to plan. So the argument here is that you can earn much more than this off of practically any investment- or so I've been told. This is also a much lower rate than what my student loan is going for- which has already accrued over 1K in interest. This is the most practical use of loan money for me, considering it will cost me much less in the long run.
    MJP- my father has said the same thing to me, and I do not like the idea of being in debt- but if it serves some benefit in the long run, I can see why it is useful. Hoping to gather a little more info to see what the pros and cons so I can make a well informed decision :)
     
  6. DK6732

    DK6732 USAFA Cadet

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    Time value of money. My parents and grandparents both said go for the loan. If you invest and spend the money wisely, then it is good in the long run.

    I took the full loan, and ended up needing the cash when my high school car broke down while at the academy, so I'd say I'm glad I took the loan for that reason alone, not to mention maxing my Roth IRA two years in a row.

    Now as a 2LT, I can tell you that I still have plenty of money to invest and spend while making payments to the USAA loan. And remember that you don't start paying back the USAA loan until you graduate.
     
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  7. Christcorp

    Christcorp Member

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    There's a lot of good advice. Each person has to make up their own minds. Just some opinions here from someone who knows a few cadets and someone who considers themselves pretty good with money and financially ok.

    1. It is always best to be "Debt Free". Obviously, this isn't always possible. E.g. can't save for 40 years to buy a home. Most people need a mortgage. A car is definitely a necessity, but until you are debt free, a NEW $25,000+ car ISN'T.
    2. Most cadets, after paying back their academy expenses and getting full pay checks, have or should have no problem graduating with around $10,000 saved up. (That's saving $416 a month for 2 years) Not saying some don't spend a lot more than others per month, but it's not difficult to have close to $10,000 saved. Especially if you had any savings to start with, such as graduation money, etc.
    3. While officers don't get paid to set up a house once they graduate, you don't NEED to spend $10,000 setting up a house. I was enlisted, and when I moved into my own place, I didn't NEED to go to IKEA and Ashley's furniture to buy a lot of BRAND NEW furniture. Maybe today's generation feels they need all NEW EVERYTHING. But you don't.
    4. If your existing debt, such as student loans have a significant interest rate, then it definitely makes sense to take the USAA loan at about 0.5% and use it to pay off that loan. It also makes sense to START your retirement fund now. E.g. $5,000 per year into a ROTH IRA. I also recommend once you get commissioned to start your TSP savings plan too. (Similar to a 401K).

    Now; maybe because of unforeseen things, you can't graduate with $10,000 saved. Only you know what you spent your money on. There's nothing wrong with using the loan to pay off debt, but a reliable USED CAR, and invest in a ROTH IRA, some CD's, and other safe investments like Savings Bonds or similar. These won't make you rich, but they are pretty safe and you aren't locked in forever. You can always get the money back if it's an emergency. There's absolutely nothing wrong with taking the loan. Assuming, you don't do as some have done, and used it all on a new car and a graduation vacation after leaving the academy.

    For what it's worth, if it wasn't already said, you start paying it back; approximately $550 a month; for the 5 years you're active duty after graduation. One thing you definitely want to ensure, is that if you take it while still at the academy, that you don't spend it until AFTER you graduate and settle in. If you leave the academy, get kicked out, or something happens that forces you out of the military before the 5 years is up, you STILL OWE THE MONEY.

    Best of luck. Mike.
     
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  8. Pima

    Pima Parent

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    Mike you made me laugh!

    How did Bullet and I furnish our 1st guest bedroom as newlyweds? Mt. Home lodging was replacing their furniture and sold everything off, so our guest bedroom came from there.

    I learned how to frame on base at the Arts and Craft Center to save money. I also learned how to build furniture with a friend. I made a preachers bench. She built her babies changing table.

    Half of my Spode Xmas China are seconds that I bought at Stoke On Trent, and to be honest, I really have to study the pieces to tell which are 2nds that I got for $1.50 and which are 1sts.

    To this day I still shop at consignment shops and Good Will. Many people adore Target, but I have to say I like WalMart more. Than again, I guess I am because after 11 moves in 21 years the lesson I learned was WalMart has the cheapest curtain rods and curtains. That was always my pet peeve when we moved....how is it that every new house we moved into would always be different than the last house?

    Military spouses, be it officer or enlisted really are unique when it comes to furnishing their home. It is amazing how we can take anything and make it something new to fit the new house with something from Lowes. Even what the movers damage!

    The most expensive piece in my house is a Cambridge Grandfather clock. We had that thing on layaway for a year as O2s.

    My biggest advice to any military member is invest in a good set of tools and watch how to shows. That wet tile saw may seem expensive at first glance, but it will save you tons of money every time you buy a house. Same with a compound mitre saw.
    ~ Bullet and I have an agreement. He gets whatever tool needed for to do the job that I want. He has an air compressor and nail gun that we needed for him to put in hardwood floors at one house. Wet tile saw for ceramic flooring/back splash. Compound mitre for crown molding, wainscoting and cornices
    ~~ Even as an officer, we tried to find a way to make/save money with every move. Handyman/contractors are very expensive. If you have the right tools to do it professionally than the ROI is going to be money back in your pocket....or at the very least allow you to sell your home at a lower price without feeling the pinch.


    Haley,

    I don't disagree about buying a used car, but I also see why to buy a new cheap car too. Bullet and I always only had one car payment. We owned our Honda Accord for 11 years. We are not people that buy new cars every few years. I hope you make sure to check out the car history before you spend a penny. Some cars are put back into the market after they were totaled or had water damage due to floods.
     
    Last edited: Apr 3, 2015
  9. baileydb

    baileydb Member

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    Quick question: how did you keep your high school car? I was under the impression we had to sell them when we go.... If the title is under your parents' name, is that a way to get around the rule? Sorry to veer a bit off topic....
     
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  10. Full Metal Bulldog

    Full Metal Bulldog Citadel Class of 2016

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    Cadet's at SA's can have cars on campus as upperclass. I'm quite jealous of my Girlfriend's WP cousin's F-150 Raptor.
     
  11. baileydb

    baileydb Member

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    So if we have a car, we can still keep it for the first two years, as long as it's off campus? Re-thinking my decision to sell my cheap, reliable Kia to my lil' sis now haha!
     
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  12. Full Metal Bulldog

    Full Metal Bulldog Citadel Class of 2016

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    Kia's are great cars. But yes, you can keep it.
     
  13. baileydb

    baileydb Member

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    It's not pretty, but it runs well :)
     
  14. Pima

    Pima Parent

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    Quick question...how is it that your car is under your name? I thought you have to be 18 to title.

    I am a USAA member. We never titled our kids cars under their name because from an insurance cost in our state, it was much cheaper to have it in our name and them as a driver.
    ~ IE our DDs car has both my name and hers on the insurance card, even though she drives it. DS2 has Bullets and his name on the card.
    ~~ Our kids have been USAA members for decades (they are military brats, given it basically when they were born)

    Just curious, not trying to be antagonistic from an insurance aspect. Wouldn't it be cheaper to title it in their name and use the folks insurance policy?
     
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  15. baileydb

    baileydb Member

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    Sorry I should clarify: it IS under them. I didn't even know that was a rule that you had to be 18. But yeah, I bought the car myself when I was 16, but we put it in their name, but still we consider it MY car, since I paid for it all by myself without borrowing any money or anything. And yes, I use their insurance policy as well, though I pay for my insurance.
     
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  16. Rocko

    Rocko Member

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    Yes, you can hold onto your car. We bought our DS a car when he turned 16. I bought a cover for it when he left last June and it is in my driveway. We removed him from our insurance policy since he is away at school (Saves parents lots of money) and he is covered to drive the car when he comes home on breaks. He will take it to the Academy when he is allowed. Once he takes it to the Academy we will add him back on as an insured on our policy.
     
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  17. Pima

    Pima Parent

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    Than in that case you don't have to sell it.

    I would contact the insurance company. USAA has a discounted rate if certain aspects are fulfilled. The biggest two are:
    ~ Student is full time
    ~ Student attends a school more than X miles away. I believe USAA says they must be 51+ miles away from the home.

    This policy covers them, but are seen as even lower than a PT driver.
    ~ IOWS, a PT driver would be something like the folks have 2 cars, and you are the third driver. The car is primarily used by them, and you are PT.
    ~ Now if you live too far away to pop home often, AND you have a younger sibling that didn't buy a car. Folks now have 4 drivers and 3 cars. They could charge less.
    ~ If your folks decide to hold onto the car, they could also just insure it with min. amounts required.
    ~~ Bullet owned a Vette. It was our 3rd car, but when talking to USAA they asked how many miles annually. We said less than 5k. The policy had a caveat that nobody under 25 would drive it. The cost was less than our other cars.

    Just saying, to save money you might want to change the policy and keep the car. Have the folks drive it every month because cars need to be driven...tires need to be used. It might be very cheap to keep it.

    Xposted with Rocko. Same thing. Insurance companies will give cut rates if the car is sitting in the driveway.
    ~~ Just read the fine print.
     
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  18. skismuggs

    skismuggs Member

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    since we are talking about cars here are my thoughts...
    1) kid is thinking of getting a car when the loan is available, we are thinking of just doing a 2 year lease because we dont know where the base assignment would be after graduation. we know 2 cadets that are graduating/graduated and they were assigned to england and japan. they had to deal with shipping/ selling cars. that way in 2 years she can either buy a car or lease another car and walk away from the old one. plus she wont have to fork too much down to lease.
    2) getting insurance policy under child's name is more expensive but it also takes the risk away from us just in case something catastrophic happens. thinking deep pockets litigation here. especially if they are letting others borrow their cars.
    3) we found that usaa gave us the best rate vs even geico where she is insured with us right now.
    4) are the colorado dealers more apt to give discounts to military people?

    what do you think of these and any suggestions? thanks
     
  19. Pima

    Pima Parent

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    Skismuggs,

    If assigned overseas the AF will ship the car for free.

    We lived in the UK as an 02/O3. We had friends that sold their cars at a great profit because American cars are not readily available. One friend had a Camaro. Purchased it as a USAFA cadet, sold it 5 years later while in the UK for @ the same amount he purchased it for.
    ~ Overseas military bases typically have an auto shop and if it breaks down they can get the parts.
    ~~ They went back with a new Volvo or Saab.

    One friend took a Vette with them for the pure purpose of selling it. As soon as he was there he sold it to a Brit, paid off the loan and bought a beater there. Banked the profit.

    Another friend bought a Harley stateside had it shipped along with their car, sold it and made money.
    ~ Don't know if it is still true, but back in our day. Motorcycles could be shipped with Household Goods. Thus, his motorcycle went in the crate and his car went on a boat.

    I think it is because the UK doesn't have engines like our country.

    Same is true for our friend assigned to Ramstein. Took their Mustang...sold it and bought an E class Benz they brought back.

    Our friend that was an O4 took their Acura SUV to Lakenheath. They sold it there and came back with a Volvo SUV free and clear.

    I could go on and on, but I think you get the picture.

    Leasing impo out of concern is not the path I would chose. American made cars are a status symbol overseas and highly desired among car enthusiasts.
     
    Last edited: Apr 3, 2015
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  20. zachtx

    zachtx Member

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    Here is the official policy on vehicles for cadets:
    A7.1. General Information. Maintaining and operating a POV are significant USAFA privileges. A cadet is maintaining a vehicle if he or she is the primary user of the vehicle, has possession, is making payments on or insuring the vehicle (at USAFA or within a 150-mile radius), even if the vehicle is registered to a parent, guardian or sponsor. The chain of command may curtail, suspend or limit a cadet's use of a POV for administrative or disciplinary reasons.
    A7.2. Maintaining a POV. First-class cadets and eligible second-class cadets may maintain a single POV within a 150-mile radius of USAFA. Joint tenancy (ownership) is not allowed (e.g., party vans or club vehicles). Third- or fourth-class cadets will not maintain a vehicle at, or within a 150-mile radius of USAFA. Cadets who are not eligible to maintain a vehicle will not have another cadet maintain a vehicle for them.
     
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