How Does the Loan Work?

justme said:
What is the benefit of paying off the loan earlier, unless you have use it or lose it scholarship type funds?

I get having them invest the money they are no longer paying back the loan with. But, I would assume the same thing could occur with the funds used to pay it off immediately which should generate a better return. 8k invested on day 1 vs 200/month for 40 months, as example.
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To get him in the habit of consistently investing his money, every month.
 
Just to clarify, the loan is interest free ( 0.0%) It is more akin to an pay advance to pay for cadet start up costs, ie. laptop, uniforms etc.

Any expenses in the Senior (1/c) year will have to be paid by the cadet and will not be rolled into the loan (as it is generally paid back in full by then). For example, the saber and belt and I think dinner whites are bought senior year by the cadet, usually with their credit card through the post exchange.

So do budget for some 1/c expenses, after the loan is paid off.
 
Haveaniceday said:
Just to clarify, the loan is interest free ( 0.0%) It is more akin to an pay advance to pay for cadet start up costs, ie. laptop, uniforms etc.

Any expenses in the Senior (1/c) year will have to be paid by the cadet and will not be rolled into the loan (as it is generally paid back in full by then). For example, the saber and belt and I think dinner whites are bought senior year by the cadet, usually with their credit card through the post exchange.

So do budget for some 1/c expenses, after the loan is paid off.
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Only 4/c expenses are in the loan. So just like 1/c year expenses, 2/c and 3/c expenses aren't rolled into the loan either. After 4/c year, cadets pay all expenses out of pocket, and uniforms (and books and dry cleaning, etc...) can definitely add up.
 
They can add up, but cadets are being paid monthly and that should cover these expenses easily so long as doordash and spring break spending is kept in check. Like most things at the academy it's an exercise in grown up skills, in this case money management.
 
The loan for uniforms and laptops is basically financial aid to help new cadets cover these essential expenses. The loan amount is credited to your account. And it’s usually paid back in regular installments from your cadet's salary, which makes it pretty manageable. Plus, you can use scholarships, 529 plans, or even your personal funds to repay or pay off the balance of the loan.
 
Just to follow up on this, during 2C year the class ring purchase pops up and can be pretty pricey ($1000-3000 or way more) plus they have to get dress white uniforms, a sword, and some other stuff that wasn't needed before senior year. Some also want to get their hands on a car as soon as possible 1C year, and those costs can add up quickly.

Not to get too far afield here, but in the spring of 2C year there is another loan offered to cadets at all the academies by USAA. It's called a variety of things, but the most descriptive one is the Career Starter Loan. It's something like $36k and it's been around a percent or two interest in the past. Ostensibly it's for cleaning up debt and having some money in your pocket to move into a new place and get your life started, but it can be used for pretty much anything so most folks either cover debt, buy a car or invest it.
 
Managing expenses and budgeting is a skill you definitely hone at the academy. It's crucial, and the monthly pay helps a lot. But let's be real, we all have our moments of temptation, especially with things like DoorDash and those epic spring break plans
 
1/c year Career Starter Loan:

One option if you don't need a car or have a car is to use some of this money to increase your TSP (401k) options when you get commissioned. If you save the loan, you can direct more of your Ensign pay to the TSP and use some of your loan for living expenses.

Coast Guard officer Robert Shay describes the process here:

TSP Cadet Loan Hack

Good luck!
 
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