I asked a question on this forum recently and was advised that new officers have the opportunity to apply for a Career Starter Loan. I told DS to see if any info would be forthcoming at his school but in the meanwhile I wanted to know how to explain to my son how to proceed to obtain this loan. Any advice and direction on how to proceed will be helpful and appreciated. Thanks.
Officer Career Starter Loan Question
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NavyNOLA
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Students in a commissioning program can typically take it out about 15 months prior to graduation/commissioning- I might be off slightly on the number of months. Generally, they can take it in junior year, spring semester. I know that USAA and Navy Federal offer them- for ROTC I believe it's still 25k and the interest rate is VERY low (mine was 1.8% when I took it about 8 years ago). Your son should contact USAA/Navy Federal to start the process- his command will most likely have to verify for the bank that he is X number of months away from earning a commission.
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Have your DH google:
USAA Career Starter Loan
NFCU Career Kick-Off Loan
The school/ROTC unit cannot make recommendations about private financial arrangements with specific organizations.
There may be a brochure in a common area.
These are low-rate signature loans (no collateral) designed to pay off higher-cost consumer debt, fund an IRA, start other investments, buy a used car, pay for uniforms and other start-up costs.
They are not Govt loans. Both have essentially the same structure, based on knowledge that was current for me a year ago:
- can take lesser amounts than max
- 5 year payback
- no penalty for early pay-off
- no requirement to invest with either USAA or NFCU
- Checking account with Direct Deposit of military pay from DFAS required
- automatic electronic loan payments required
- payments start about 90 days after commissioning; can't recall what the schedule is if already commissioned
- for USAA, loan is available up to 1 year after comm date
- USAA may offer an IRA match up to $250 (invest $250 in new IRA, get $250
- for USAA, failure to meet repayment terms raises the rate to 18%, consistent with industry for signature loans. NFCU is likely similar.
- cannot take both loans (can't have two Direct Deposits)
- SA rate differs from ROTC rate
USAA and NFCU offer these products and take losses on it to lay the foundation for a lifelong relationship and additional product acquisition.
Some do this, some don't. The important thing is to do smart things with it.
Disclosure: I worked for USAA and was involved with this program.
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That sounds like the ROTC rate. Interest rates do vary from year to year, based on market value of money, but not usually very much for these loans. I have seen the ROTC vary from 2.25 to 3.25, the SA from .5 to 1.75 over many years.
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DS got his 25K through USAA. He loves USAA. He bought his dress uniform for commissioning (they don't give those away), paid off his school loans and opened a Roth IRA. Still plenty left over to set up houskeeping. I think there is still monies in his savings account. Payoff is painless since he never sees it. Great deal as long as you're responsible.
USMAROTCFamily
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I have to admit that it always irked me that they offer a lower interest rate to the SA grads vs. the ROTC grads. Active duty is active duty and the pay is the same regardless of the commissioning source. Are they implying that an academy grad is more financially responsible than an ROTC grad, thus rewarding them with a lower interest rate? Things like this fuel the the impression that academy grads are superior to their ROTC counterparts. Now I can understand if the new officer is in the Reserve/Guard potentially having a higher rate, as from an underwriting perspective for an unsecured loan, there would not be the same guaranteed higher level of income that an activity duty officer would have.
One thing to consider when looking at the different interest rate between the USMA and ROTC grads, SA grads have a 5 year AD obligation, ROTC grads can vary from 3, 4 year, and not sure about AF and NROTC. USAA has less risk with the SA grad since they can take the payment out of their paycheck for the full 5 years. The ROTC grads could have 1 or 2 years left on their loan when their obligation ends resulting ig greater risk on the lender's part. Risk always effects the interest rates on loans.
USMAROTCFamily
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That is true, but they are already controlling the risk factor by offering a lower loan amount, which presumably is because of the shorter obligatory active duty time.
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The business reasons for the rates came down from the analysts on high, after various cost models were run. If I recall correctly (and it's been a year, things change), the default rate was higher over the total ROTC population over the years of the loan, plus other factors - nothing to do with any subjective prejudice against any one commissioning source. SA grads are more likely to start their careers/obtain while a mid or cadet, multiple products, such as auto, personal property, checking, savings, IRA, mutual fund, money market account, thus evening out the loan costs earlier. ROTC grads typically have less exposure to USAA marketing than the SAs, and acquire multiple products later, thus driving up potential cost/loan product. USAA also offers this loan at the ROTC rate to direct commission and enlisted commissioning programs, thus expanding the pool of risk factors. The SAs are a fairly homogeneous pool, already on active duty when they become eligible for the loan, and tend to be very predictable in loan performance after graduation.
Those are my best recollections from my time as a sea-level employee, and I am certainly not speaking for the company, just from what I recall from discussions when I worked for them. I left the business modeling and product pricing to the green eyeshade folks at corporate HQ.
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I am not quite clear on your DS' status, and in what context you are asking, but here goes:
If he is currently ROTC, and is eligible per USAA/NFCU (I think he has to be contracted, with not more than x time to commission) or has graduated via ROTC, and is within a year of his comm date, he can get the loan. Caveat: he should contact the USAA/NFCU and get current eligibility policy, rates and terms.
If he is at an SA, he is eligible for the SA loan at some point during 2/c year, depending on the dates USAA and NFCU make it available. It does vary among schools. Graduates who haven't taken it usually have a year after commissioning when they can still get it. Same caveat as above.
If your DS has any possibility of inactive/unpaid time between commissioning via ROTC and AD commencement, that should be factored in.
Best thing for DS to do is research all options, figure out what's right for him, develop a sound plan, based on current offerings.
Reading your question very literally, the SA loan terms (USAA) are set the same across all 5 Federal Academies for a given class year, whether the mid/cadet takes the loan as a 2/c or after commissioning. Ditto ROTC loan for a given class year. Many take it as a 2/c, so the money can be put to work for about 2 years, since payments don't start until about Aug for May commissionings.
USMMA was an interesting business case all on its own, since not all grads go active duty. The mean earnings after graduation for those going into maritime industry were such that there has been a very low incidence of default. USMMA is included in the SA loan rate analysis due to similarities of the population's characteristic consumer behaviors to the other 4 SAs.
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Sled
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I commission this Spring and it sounds like you have some experience with it. I owe 2.5 yrs worth of tuition (approx $18k) in student loans which I've been paying the interest on. Would it be feasible to take out that much and pay it towards my student loans with the higher interest rates?
What is the current interest rate on your student loans, will that interest rate increase once you graduate and what will your payments be once you start paying down the student loans?
The current interest rate of the USAA loan is right around 2.99 %, if you took out an $18,000 dollar loan through USAA with a 2.99% interest rate, and payed it back over 5 years your payment would be $323.36 per month.
If that payment is significantly less then what your current student loan payments and interest rate would be, then getting the USAA loan would make sense.
If you do not have any other large monthly payments, there is no reason you couldn't add more to the principal each month to pay off the loan much quicker.
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Here is what may be a helpful calculator to analyze the benefit of using the starter loan to pay off your existing student loan.
https://www.nerdwallet.com/blog/loans/student-loans/student-loan-refinance-calculator/
https://www.nerdwallet.com/blog/loans/student-loans/student-loan-refinance-calculator/
Disclosure - I work for USAA and specially work the Career Starter Loan
Capt MJ is correct in that we do not value the membership of an academy cadet/mid over a ROTC or direct Commissioned. The amount and rate is based on the cost of money (these are unsecured signature loans and cannot be resold) and the default rate. The non academy group has a much higher default rate. We do run the numbers each summer for the upcoming junior class before we set the terms. The terms are set for that year group and do not change regardless when they take the loan.
The other factor we examine is the debt to income ratio. USAA has internal planning factors in how much debt a newly commissioned officer can absorb.
The other important factor is that your cadet/mid is eligible for the loan up to 12 months after they commission. Some are not ready for that level of debt until they get settled into their new job.
I graduated from West Point in 1978 and there was a "loan" long before I entered the academy. It has been a tradition for decades. It is only an offer. Again, they have 12 months after they commission to take advantage of the loan.
Rusty
Capt MJ is correct in that we do not value the membership of an academy cadet/mid over a ROTC or direct Commissioned. The amount and rate is based on the cost of money (these are unsecured signature loans and cannot be resold) and the default rate. The non academy group has a much higher default rate. We do run the numbers each summer for the upcoming junior class before we set the terms. The terms are set for that year group and do not change regardless when they take the loan.
The other factor we examine is the debt to income ratio. USAA has internal planning factors in how much debt a newly commissioned officer can absorb.
The other important factor is that your cadet/mid is eligible for the loan up to 12 months after they commission. Some are not ready for that level of debt until they get settled into their new job.
I graduated from West Point in 1978 and there was a "loan" long before I entered the academy. It has been a tradition for decades. It is only an offer. Again, they have 12 months after they commission to take advantage of the loan.
Rusty
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Thanks, shipmate. I always like calling WP folks that. It's truly a compliment. Really.