Low Interest Loan available to rising Seniors

Discussion in 'ROTC' started by Bug'sMom, Jan 6, 2013.

  1. Bug'sMom

    Bug'sMom Member

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    I am interested in knowing more about the low interest loan that is being made available to my son this summer. He will be completing his junior year this spring. What is the interest rate, loan amount available.... He is in NROTC. Thank you.
     
  2. larry2013

    larry2013 Member

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    I will offer what we know - my son is now a senior at VMI, NROTC 4yr scholarship cadet, so he has looked into what is available. My understanding is these 2 programs, there may be more, are available to all MIDN/CADETS - the 4 federal academies students get lots of info, but our experience has been that the NROTC, and really any of the ROTC cadets, dont really hear much about these.
    From our experience and familiarty with USNA we knew that NFCU has what is called a "Career Starter Loan" currently offered to MIDN who are in their JR or SN year. It was very hard to get info at our local NFCU branch, they originally told us we would have to visit a branch closest to one of the FED ACADEMIES, but then a great NFCU person got the info, gave my son the perametors and got the necessary application from the annapolis branch. We have been told he can apply for it at any branch - this spring he will be doing that here in northern virginia. As I recall their starter loan - max $32,000, pay back 5yrs, interest rate little over 1% - payback could be delayed until after graduation, but interst will accure. Example they had was repayment after 3 or 6months, max loan amount - payment was $553.00 ish. REQUIREMENTS - direct deposit, commissioning, loan funds will be deposited directly into nfcu acct. This loan could be applied for and received early their junior year as i recall. This loan must be taken BEFORE commissioning
    the other one I know about is USAA - requriements same - direct deposit, payback similiar - can be delayed until after graduation (3 mon after something like that) USAA's max was $25,000. payback over 5yrs, their interst rate was more - maybe low 2% - but dont remember. Think USAA's had same or similiar name "Career Starter loan". Also USAA's had different first availability date but could be taken up 6mons AFTER commissioning (that's what I recall).
    I am sure if you called USAA or NFCU -they would be happy to give you the exact details etc. This is what we learned and others out there may have more information. -larrys mom
     
    Last edited: Jan 6, 2013
  3. Pima

    Pima Parent

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    Honestly, you have to look at what you are taking the loan for... Car? Currently car loans are as low as 0%. Career starter loans will never be that low, BEWARE don't over extend!

    Our DS took only 10K career starter. He purchased his new car using Toyota loan...0% for 15K.

    5K was invested in an IRA to max out. 5K was for safety when he moved to his 1st duty station...he now has invested that too.

    The starter loan is great, but if you don't use it wisely you can find yourself deeper in debt, especially if you have college loans.

    It is a loan. USAA has a fine print on it...look at it. Frightening to see what they will up it to if you leave early!

    I would not take the USAA loan until he has commissioned.
     
  4. soccerkeeper1

    soccerkeeper1 Member

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    DS wasn't a four year ROTC and has some student loans from year one. Does the Navy have a student loan forgiveness program if they go Active Duty upon graduation? If not ... this sounds like a great way to payoff Student Loans at a lower interest rate?
     
  5. kinnem

    kinnem Moderator

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    1. Active Duty is the only option for Naval ROTC midshipmen, so there is no "if" about it.
    2. The Navy does have a student loan repayment program but it appears that only enlisted folks are eligible.
    3. It may or may not make sense to use it to repay student loans. Yes, the interest rates are lower but the term is shorter as well. It's certainly worth investigating.
     
  6. USMCGrunt

    USMCGrunt Member

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    I am not offering any financial advice - just an anecdote and an observation.

    Back in my day, we graduated and reported to OCS right away. Within a very short period we had to buy our full compliment of uniforms which (if I remember correctly) was around $4-5,000.00. For a lot of folks coming up with that money was tough. I think the uniform shops would loan you the money at some exhorbitant rate. Don't remember any low interest starter loans but would have gotten one if I could. My point? Don't forget about this impending cost which comes quickly after graduation.

    Disclaimer: my information is dated. Perhaps the process is different in today's military.

    My observation: I have seen a lot of kids (academy students) take these "career starter" loans for cars, etc. Previous posters have made the point already - you can probably do better.
     
  7. Aglahad

    Aglahad Member

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    I have the USAA cadet career starter loan. What do you want to know about it?
     
  8. Jcleppe

    Jcleppe Member

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    If your buying a new car you can probably get a better interest rate from the dealer.

    If your buying a used car the USAA loan may be a better bet.

    One nice thing about the USAA loan is that it does not start taking the payments for about 6 months after you commission, which can be a plus since most cadets do not head off to BOLC right after graduation.
     
  9. Bug'sMom

    Bug'sMom Member

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    I am a proud parent of a NROTC-Marine Division at University of South Carolina.
     
  10. Pima

    Pima Parent

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    I agree if you take that loan to pay off student loans and than take a car loan on top of that you can find yourself using credit cards to live. O1 pay is @40K a yr before taxes, taking 40K (25K for college- career starter and 15K for a car) over a 4 yr repayment, = about 1K a month, add in setting up a 1st time home... pots, pans, dishes, linens, tv, bedroom furniture, living room furniture, on top of monthly bills like car insurance, cable, cell phone, insurance, food, etc. there won't be much left to invest during those 4 yrs. If anything at all.

    Leaving the student loan as is spread across 10 yrs is an easier pill to swallow, and he can always pay it down faster without risking he is going to be strapped for the G forbid event.
     
  11. goaliedad

    goaliedad Parent

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    This parent's advice is to tie up as little capital in a vehicle as possible after graduation. If there is a good used car in the family that is available, buy it. If the beater that you've been driving for the last couple years is in decent shape, take it off your folks hands for a song.

    The next best thing is a 2-3 year old economy vehicle (perhaps OEM certified) that lets someone else take the 25% hit on when they got the new-car smell. For this, you will probably be better off taking the starter loan rather than dealer financing.

    Additionally, the newly commissioned O-1 should make sure they have enough money on hand to get that lease squared away (assuming you live off-base), some starter furniture (enough that you can have a couple friends over for dinner and a some evening fun, but keep it simple) and most importantly if you don't have an emergency fund (3 mos take home), at this rate it might be OK to borrow that for a short time as you never know when something happens. Yeah, it boosts your committed payments, but taking a year or 2 to put aside an emergency fund is asking for trouble in my book. The 1-3% while you pay off that amount of the loan is a small price to pay for that ability to handle the stupid things that happen (tranny failure, car wreck, etc.). Of course, remember if you can budget for it, it is never an emergency.
     
  12. kinnem

    kinnem Moderator

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    A whole division? Really? God Bless you ma'am. :biggrin:
    Sending you a PM.
     
  13. Aglahad

    Aglahad Member

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    I took 12k out to replace my old car so I could give it to my brother. I bought a mid-2000 Toyota Tacoma and consider it a solid vehicle with little to no problems. I do not recommend going out and using the entire 25k on a brand new vehicle like some of my peers. Many have car payments and insurance rates through the roof as they now enter BOLC...

    Whether it be a new PV2 or 2LT there will always be those that go spend crazy when they get their first loan or paycheck. Sorry a 35k vehicle on a 50k a year salary is not smart in any sense but you see it a lot.
     
  14. Jcleppe

    Jcleppe Member

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    That is great advice. Now if only my kid would have listened.

    I have to admit, the drive I took with him from Seattle to Ft. Rucker AL. in his 2010 red Mustang GT was a blast and took me back to my muscle car youth, I do wish he would have looked at some other options. That being said he was in at least a position where he had no student loans or credit card balances, actually no debt at all, he was in the odd position of being in the black by about 6K when he left for Ft. Rucker.

    Had I been able to talk him into other options he would probably be driving something else, he did get a screaming deal on the car and it's still worth more then he paid. At least he took his time and found a great buy.

    My wife had asked me to talk to him about buying something more practical, I had to laugh, my first car was a 66 GTO built for speed, I guess I wasn't much help in that regard.

    Luckily he has been fairly good with his pay and has a good nest egg and is now investing, not too many ways to spend your money when you either in class or studying most everyday.

    For you new grads, listen to Goaliedad, he has give some great advice.

    Just to add one thing, the car did not cost the entire loan, it was below $19K, with 20K miles, like I said, a screaming deal for what he got.
     
  15. Aglahad

    Aglahad Member

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    I am a truck guy, but man I wouldn't mind a Mustang GT haha :thumb:
     
  16. goaliedad

    goaliedad Parent

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    A smaller (they're not as small as they used to be) pickup is often a good practical compromise for a young officer (great for lugging around your "stuff"). They hold their value pretty well when you need to sell them and as long as you don't get crazy equipping them (you can spend from 18K to 36K on a new Tacoma) you will be OK. The 2000 model you bought has taken almost all of its depreciation (unless you let it rust out) it will ever take and generally doesn't require much maintenance.

    That Mustang OTOH will not fetch quite as much at trade-in time.

    Good Choice Aglahad!
     
  17. Packer

    Packer Member

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    Must be hereditary!:biggrin:
     
  18. larry2013

    larry2013 Member

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    I was glad to see comment regarding truck - that is what my son has had his eye on for years - knowing that each situation is different, I can accept that my son will buy a new truck, it helps that there is no serious relationship present, that he has households for a 1 bd apt (from moms downsizing) and is really tight with money.
    He was counseled (by grandfather who has done his investments thus far - even his ROTH is bringing in over 3% now)to use the career starter to jumpstart his investments, and thus the payback sets up natural out of mind for continuing the amt into savings when gone.
    As i said each situation is different, for us, I am proud that between his scholarships and frugal living, my son will graduate debt free, having driven hand me downs for years now. I will take comfort that he has very reliable transportation with hands free phone and nagiviation. But that's just us and our situation. I just wanted to share what we knew of the plans. I have learned much on this site, espically early on about VMI, so wanted to share what I could. The time flew by as I suspected - this is his senior year, so next year will bring many new adventures. larrys mom
     
  19. Aglahad

    Aglahad Member

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    Although it is great to look towards investments while young as I have said before on this forum I would use extreme caution when using borrowed money on some like a ROTH IRA (or any at risk investments).

    The only way it could be safe is if you put it in a low risk guaranteed fund, but even then the regular interest rate would have a higher payout...
     
    Last edited: Jan 8, 2013
  20. Pima

    Pima Parent

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    Aglahad,
    would disagree with you regarding the investment of a ROTH, there are many reasons why it is actually a sound investment. Top 2 are:

    1. Income taxes --- investing 5K automatically helps from this perspective
    2. In a long term approach the return for the stock market has been around 12%. Yr to yr there will be variations on the return, but you will be avg them out over the next 40 yrs. This also does not include any capital gains, dividends, and or stock splits.

    In 1973 at the bottom of the market it closed at 577 points. 40 yrs later and we are @25 times higher. If you purchased just 1 share at 10 it would be worth 250 now.

    Placing it into CDs or bonds will not result in the same return.

    Finally, I think we are all in agreement that by the time you guys reach 65, SS as we know it now will not exist in the same form as today. The best way to prepare for your golden yrs is to invest in a program that is designed for retirement at the earliest opportunity utilizing all the tax advantages available to reduce any tax obligations. Roth does exactly that.

    As others have stated be smart about the car. I understand the depreciation factor, but I would also warn that used cars also will have higher mileage. Our DS purchased a new 2012 Toyota Corolla for 15K and change including taxes, tags. He is covered bumper to bumper for 3 yrs. He does not have to worry about what if the car breaks down. Cars today have a ton of computer chips in them and when they start to go, you are looking at a lot of cash to outlay. If the car has even 40K, and you only put on 35K over the 3 yrs., you are still looking at tires, batteries, mufflers, struts, breaks, serpentine belts, etc., that will not be covered. Thus, for the same amount of money in the long run you maybe better off with new.

    Also, as mentioned before, most new car dealers will offer a 0% int loan. Even against the low USAA loan, it is still @2.75% int. you are paying over 3 or 4 yrs. It does not make up the 20% depreciation, but when you add in that with if the car breaks down during those 3 yrs you can find yourself in a losing scenario.

    Finally, I would not take this loan until they graduate, as stated the 1st payment is not due until 6 months after commissioning, but the interest will start accruing immediately. Taking it this summer at the 1st available opportunity would mean about 15-18 months of accruing interest.
     

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