Officer Career Starter Loan Question

My DS did NOT take the full 25K. He took 10K, 5K checking and 5K ROTH IRA. He purchased a new car using the dealers 0% int loan. Nothing snazzy a Toyota Corolla.

My point is think about everything before you sign the paperwork. 25K at 2.99 sounds great, but not so much if you are using it to buy a car that you could get a loan at 0%. It is great to take it to invest in a ROTH because long term over the 5 yrs the stock market is going to return at a much higher rate than the 2.99 interest you are paying.

It is important to really really remember that unlike the SA grads your 1st paycheck may take time to catch up to what you need to outlay when you move to your 1st duty station and at the same time that 6 month grace period may be up and the 1st payment may be due.

Just my opinion and with 2.07 cents you can get a small coffee, but I would never suggest to anyone to use all of the loan for a student loan repayment unless you have 5K in the bank for that move.
~ DS basically outlaid 5K for his 1st PCS before his pay caught up. Traveling across country for 4 days costs money. The per diem will not be paid back until you report, so ask yourself where is that money going to come from? Once at that base, staying in the Qs, at least for AF has to be paid for every 10 days, where is that money coming from? Checking or credit cards at now a higher rate than the 2.99? How much can you raid from the folks home and fit in your car to take to your 1st duty station...pots, pans, dishes, sheets, towels,tv, etc.? Even living in the BOQs you need to supply those, if there is no BOQ option than are you going to raid your mattress and furniture from your bedroom, how about the family room sofa? Just saying you will need a bed before that paycheck catches up. Have you ever done a true 1st grocery shop? You'd be amazed how it can cost a single person $300 at the Commissary will only cover the mins....toilet paper, aluminum foil, dish detergent, laundry detergent, hand soap, shampoo, body wash, ziplock storage bags/containers, milk, bread, PB, salad dressing, mayo, tuna fish, mac & cheese, butter, eggs, cheese, salt, pepper, etc are more expensive than most college grads realize and I am not even hitting the expensive crap like meat, cereal, fruits/veggies or a 12 pack of soda/water/gatorade.

Just saying my DS about died when reality hit him for setting up his BOQ, he did not have to purchase furniture, or a tv. He did have to pay for cable. He did have to buy dishes, linens, etc. He spent about $800 the 1st few days. Again out of pocket because as a ROTC grad your pay will be delayed for @2 weeks after reporting. Report on the 28th, well you missed the 1st of the month paydate and now you are waiting until the 15th. Report on the 5th, you make it for the 15th, but you still have 10 days to survive without pay, and your USAA starter loan payment is due on the 7th.
~ I still laugh at him saying Mom do you know how much a small container of paprika cost? Me: Are we doing the Price is Right? @2.49 cents! Think about it...you will be cooking on your own. Salt, pepper, flour, sugar, oil, oregano, are going to be on that 1st shop and from a Price is Right perspective you are not going to walk out even as a single person with less than 300 on your 1st shop unless you of course want to eat Ramen!
~~ DH was ADAF for 21 yrs. 11 moves. When I could I would hand carry (DITY) all of my dry goods, and still it would cost me several hundred just to replace the staples that I could not DITY.

Take the loan, but be smart. Think long term about how you spend it. If you take it and spend every penny to pay down a student loan or buy a car ask yourself where will you get the money to pay for the move? How long is that lag time before reporting? Can you get a job to save up enough money to live for a month with maybe only 1 paycheck while you are now being hit with the USAA loan, and the credit card bill due for you moving to your 1st duty station? Will you need a new car, and how will you pay for that if your pay is delayed?

Finally, because DS was financially frugal, and thought about long term before signing the paperwork, he was able to live without worrying while his pay caught up. If he wanted to go to Popeye's for lunch 5 days a week, he could because he put 5K from that loan into his checking account instead of on his credit card at a higher rate. His friends did not have that option because they used the entire sum for student loans or a new car. He came home for Xmas that year and could pay for the ticket on his debit card, no interest. His friends had to buy their tickets on credit, not because they wanted the points or airline mileage, but because they used it all on the student loan or car and had no safety net.

JMPO, but I think too many people do not realize why it is called a CAREER starter loan. It is to start your career, and they know that when you move it will be VERY expensive. They expect that you will probably rent, and most residences (apts or homes) will require 1st and last month deposit. In NJ or VA, that could mean 3K just for an ehhhh apt., and not including the utilities or cable deposit.
~ I do not know if they still do it, but back when Bullet was ADAF, everytime we PCSd he was allowed to take a 1 yr loan for the amount of 1 mos base pay at 0% int. We always took it. Yet, the reality was that was how much it cost us to set up house again...in the course of 21 yrs and 11 moves, I can say that rarely my curtain rods and curtains fit from one home to the other....so what was I to do? You got it, bought new curtains and if you think the food bill is expensive, curtains even at WalMart are way more! Curtain rods, well don't get me started! And YES I dragged every flipping curtain rod and curtain I ever owned to each and every base, but still I had to buy new ones because either the rod or the curtain was not the right size, color, length, etc.
~~ Pretty sure Capt MJ is laughing and relating to that!

My last piece of advice is to do what DS did once his pay got straightened out, the 5K checking he put aside for his 1st PCS move was placed into a mutual fund money market checking acct for TDY. He has a traditional checking with USAA, but also a TDY account that he uses. For the AF, you get paid when you return from deployment/TDY. He is a C130J pilot. He can be sent TDY for 3 weeks where he needs to pay for rental cars, lodging and food, out of pocket until he returns and submits his receipts. Meanwhile, his car payment, mtg, credit card bills, utilities are all due. In essence, he was paying for both at the same time. That TDY acct allows him to live without impacting his household budget...he is now married.
 
I have reread PIMA’s post several times & as usual, she makes a lot of sense. While PIMA definitely makes the case for taking the partial loan, I am unsure if one could make ends meet easily if the total loan amount was taken.

If a newly-commissioned officer took the max loan amount, 25K, repaid it over 5 years @ 2.99%, the repayment amount would be approx. $450/mo. for 60 months. (www.bankrate.com)

Is that # too high under the current salary of a 2nd Lt., (hopefully promoted to 1st Lt.) sometime during the repayment period? For me, (non-military) their salaries don’t help as I don’t know how to prepare a budget which accurately reflects all of the expenses of military life (food, BAH, regional cost of living adjustments, etc.). As an outsider, that $450/mo. # seems to be a budget-buster which doesn’t make sense as the loan is a career starter. Would someone who has taken the maximum loan amount under recent/current salary condition’s please advise? Thx.
 
Wishful said:
I have reread PIMA’s post several times & as usual, she makes a lot of sense. While PIMA definitely makes the case for taking the partial loan, I am unsure if one could make ends meet easily if the total loan amount was taken.

If a newly-commissioned officer took the max loan amount, 25K, repaid it over 5 years @ 2.99%, the repayment amount would be approx. $450/mo. for 60 months. (www.bankrate.com)

Is that # too high under the current salary of a 2nd Lt., (hopefully promoted to 1st Lt.) sometime during the repayment period? For me, (non-military) their salaries don’t help as I don’t know how to prepare a budget which accurately reflects all of the expenses of military life (food, BAH, regional cost of living adjustments, etc.). As an outsider, that $450/mo. # seems to be a budget-buster which doesn’t make sense as the loan is a career starter. Would someone who has taken the maximum loan amount under recent/current salary condition’s please advise? Thx.
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It's more than manageable on an O-1 salary. However someone shouldn't take it just to take it.
 
OK Thank you
 
Something else to consider when weighing using the starter loan for a reliable used car vs buying a new car from a dealer: the 0% APR seems attractive until you factor in depreciation on a new vehicle (11% the first minute, 20% the first year, and around 60% before it's even paid off). If you buy new and keep forever, then depreciation is not a factor.
 
Wishful said:
Is that # too high under the current salary of a 2nd Lt., (hopefully promoted to 1st Lt.) sometime during the repayment period? For me, (non-military) their salaries don’t help as I don’t know how to prepare a budget which accurately reflects all of the expenses of military life (food, BAH, regional cost of living adjustments, etc.). As an outsider, that $450/mo. # seems to be a budget-buster which doesn’t make sense as the loan is a career starter. Would someone who has taken the maximum loan amount under recent/current salary condition’s please advise? Thx.
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A lot will depend on what other obligations the person has. My son took the full amount, he bought a used car (Mustang GT) Not the most practical but sure looked nice. He had some left over that he used to buy some household goods. Son did not have any other loans, just the normal payments of phone, cable, gas, insurance, ect. The loan was more then manageable, he was able to save money and still pay off his loan in 2 1/2 years, he did have roommates at his first unit assignment which gave him some extra BAH to put toward the loan, but even without that the loan was very manageable.
 
txpotato said:
Something else to consider when weighing using the starter loan for a reliable used car vs buying a new car from a dealer: the 0% APR seems attractive until you factor in depreciation on a new vehicle (11% the first minute, 20% the first year, and around 60% before it's even paid off). If you buy new and keep forever, then depreciation is not a factor.
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Also, look at taking over a lease. DS took one over at a significant discount.

Just don't do it on a gentleman's agreement. Only do it through the leasing arm of the the manufacturer. In DS's case the paperwork was handling for Ford Leasing through a Ford dealership. When he deployed overseas, Ford tore up the lease.
 
I agree that loan is very manageable. One should look at their BAH as a zero net at best unless you either live with other people or not in the most ideal areas, even on base it is zero net.

If you look at just base pay for an O1 with less than 2 yrs it is almost 3k a month. In the realtor world for mtgs we look for 30% unsecure debt pre tax ratio as the marker (credit cards, cars, student loans). Additionally, within 2 yrs you will see huge salary increases. O2 over 2 yr base pay jumps almost another 1k. By the time you have 4 yrs in and pin on O3 you are at 5200.
~ As an O1 you want that debt payment total to not go over 900.

The pitfall that I have seen occur for many military members is they will take that full loan and because they did not put anything aside to start their life (i.e for furniture) they now start charging up their credit cards to pay for their necessities to live. Now they have more debt and start the downward cycle. The bills become higher and take priority to be paid before you pay yourself, so instead of paying by cash to go out to dinner with the buds, you put it on your credit card which in turn means either you are increasing your debt even more or at best not paying down the debt, just the interest.

As I stated before DS basically took the total of 25K, but in a different manner. He lived on base so the BAH was zero net. He bought my DILs engagement ring (5K), paid for her to visit (fly out) every 6 weeks, paid for her wedding gown, most of their reception for 85 people, their honeymoon and did all of this while he was an O1 and still put 25% of his paycheck away into savings/ROTH.
~ This is also a kid that will buy any new game out there and go out to eat instead of making dinner himself. Something that is very common for UPT students because their days are so long that it is just easier to hit Subway or Popeyes on the way home and start hitting the books or chair flying instead of coming home and spending 30 mins making dinner and than hitting the books.

My one last suggestion that I have and we gave to our DS get a credit card that will give you points. AMEX PLATINUM or at the very least GOLD is the one I would suggest. The reasons why are multiple.
1. It has to be paid in full every month.
~ We would charge everything from gas to food to paying our cell phone bill on the AMEX, believe it or not we have even put our car down payments on that card. I would than immediately deduct it from my checking account register, as if we used it like our debit card. Our Visa or Master Card was the OMG how am I going to pay for this? IOWS, the car broke down and I don't have 2K laying around in ready cash. It was/is our safety net....we don't even carry them in our wallet, they are put away in a ziplock baggie in a safe in the house....we make it that way so it is not easily accessible, it is something we really think about before we pull it out.
2. Those points add up really fast if you do use it like a debit card.
~ In turn, now you can use those points to pay for you to fly home. Points to upgrade from coach to 1st. Points to buy that 55 in tv for nothing, granted buying anything with pts is not cost efficient, but still it is an option.
~~ Bullet and I when he was an O5 basically put about 75K on the AMEX within a yr. because we used it for everything regarding our disposable income. As I stated above we did all of that, but also we even paid our mtg on the AMEX bill. Debit was only ever used for small weekly pin money to keep in the wallet.
3. AMEX will waive their fee for AD members.
~ You pay it at 1st, but than submit proof you are military and they reimburse on the next bill. USAA does offer AMEX
4. AMEX Platinum has some great perks.
~ When you fly bc you have the Platinum you get to use their lounges in the airport.
~~ Yes there are the USO lounges, but trust me the Crown room is much much nicer, free food, free booze, comfier chairs, etc. Plus at the very big airports the USO lounge may not be in the same area as your gate. IE when we just recently flew out of Miami, the USO was in the main terminal, but our gate was in the D terminal...a haul to walk to.
~ It allows you to get early .and late check in at many hotels.
~~ Perk if your flight gets you there at 11, but the hotel does not allow check in before 2. You also get late check out options. Flight out is at 4 and instead of checking out by noon you can check out at 3.
5. AMEX Platinum has no limit, but the Visa or MC will.
~I am going to guess that the USAA Visa for an O1 will be around 5-7.5K which is still lower than the AMEX Gold.

USAA also offers a Visa that offers points or cash back, but unless you have that financial restraint to use it like a debit card and not a traditional credit card I would use AMEX over the Visa. If it was me, and I was taking the loan, I would take it while simultaneously getting the credit card that you prefer. Put the loan into your checking account, but do not use it immediately. Buy/pay for everything that you can on the credit card and when the bill comes due pay it off in full that month, no interest will be charged even for a Visa. You now have made the money work even more for you bc you got points and you were going to use it for that X item anyway at that rate.
~ Let's say you buy the used car for 15K . Car dealerships will accept credit cards like AMEX or Visa. You pay the 15K on AMEX, that is 15,000 points. Bill comes due 3 weeks later and now you pay it in full with the loan that has been sitting in your savings acct making even 2% annually.
~~ Conversely if you took the loan and paid out of your checking acct you would still be paying that 2.99% for the 1st month right off the bat and no points building on the credit card.

Sorry for the long diatribe, but since we have gone down the rabbit hole I felt we should feed the rabbit too while we were at it.

You will never be a millionaire when serving, but you can live very comfortably if you PAY YOURSELF 1st. That means making money work for you. If you look at the stock market from a long term aspect the ROI is historically @12%. Investing even 5K to max out your IRA, you are making money.
~ Personally looking at my DS's life, and Bullet and mine, I would not use it for a student loan unless the loan is 4%+. DS and us both had purchased homes before 3 yrs from ADAF. Stealth, Fencer, and Jcleppe's DSs also purchased homes by the time they were O2s. When you buy a home you will do the 1040 A, not the EZ. Interest from your student loan is tax deductible just like your mtg. Interest from the starter loan is not.
~~ yes, I get it for the 1st 2 yrs you are paying at a higher rate for the student loan, but flipside if you used the loan to pay off the student loan and not invest you are going to lose money in the long run.
 
You all helped us with this so much. DS has started the process and he said it was easy.
 
Will advise DD. Thank you.
 
Since I got mentioned above I will give my opinion. Take the loan and invest it wisely. The low interest makes it almost free money and you can invest long-term for the future. My son took the full loan ($35,000 at .5% interest - payment of $600/mo.) and invested it in a stock fund mix of his own choosing (with a little advice from Mom and Dad). Granted, his timing was nearly perfect since he got his loan in 2009. By the time he had graduated and finished pilot training, the fund had grown enough for him to put a big down payment a very nice 3 BR 3 BA house in Arizona where he was stationed first. He researched and saw that the housing market in the Phoenix area was way down and bought a foreclosed home for less than half of the original value. He still left some of the money in the bank account. When he got moved to Florida, he used the rest of the money for a down payment on another home. Once again, the Miami area had a depressed housing market and he bought a nearly new 3 BR 3 BA home that was going to be foreclosed. He rents out the Arizona house to another military member and it is now paid off. He is moving from Florida in April and he already has another military tenant lined up to move into the Florida house and he hopes to have that one paid off by the time he gets back from Korea. He lives very simply, drives a 4-year-old Camry, and invests his money. The starter loan gave him a great jump start and allowed him to take some chances and do some things he couldn't have done without it. Just don't blow the money.

Stealth_81
 
Stealth_81 said:
Granted, his timing was nearly perfect since he got his loan in 2009. By the time he had graduated and finished pilot training, the fund had grown enough for him to put a big down payment a very nice 3 BR 3 BA house in Arizona where he was stationed first. He researched and saw that the housing market in the Phoenix area was way down and bought a foreclosed home for less than half of the original value.
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Good for him. I can't imagine the timing being any better.
 
Pima said:
My DS did NOT take the full 25K. He took 10K, 5K checking and 5K ROTH IRA. He purchased a new car using the dealers 0% int loan. Nothing snazzy a Toyota Corolla.

My point is think about everything before you sign the paperwork. 25K at 2.99 sounds great, but not so much if you are using it to buy a car that you could get a loan at 0%. It is great to take it to invest in a ROTH because long term over the 5 yrs the stock market is going to return at a much higher rate than the 2.99 interest you are paying.

It is important to really really remember that unlike the SA grads your 1st paycheck may take time to catch up to what you need to outlay when you move to your 1st duty station and at the same time that 6 month grace period may be up and the 1st payment may be due.

Just my opinion and with 2.07 cents you can get a small coffee, but I would never suggest to anyone to use all of the loan for a student loan repayment unless you have 5K in the bank for that move.
~ DS basically outlaid 5K for his 1st PCS before his pay caught up. Traveling across country for 4 days costs money. The per diem will not be paid back until you report, so ask yourself where is that money going to come from? Once at that base, staying in the Qs, at least for AF has to be paid for every 10 days, where is that money coming from? Checking or credit cards at now a higher rate than the 2.99? How much can you raid from the folks home and fit in your car to take to your 1st duty station...pots, pans, dishes, sheets, towels,tv, etc.? Even living in the BOQs you need to supply those, if there is no BOQ option than are you going to raid your mattress and furniture from your bedroom, how about the family room sofa? Just saying you will need a bed before that paycheck catches up. Have you ever done a true 1st grocery shop? You'd be amazed how it can cost a single person $300 at the Commissary will only cover the mins....toilet paper, aluminum foil, dish detergent, laundry detergent, hand soap, shampoo, body wash, ziplock storage bags/containers, milk, bread, PB, salad dressing, mayo, tuna fish, mac & cheese, butter, eggs, cheese, salt, pepper, etc are more expensive than most college grads realize and I am not even hitting the expensive crap like meat, cereal, fruits/veggies or a 12 pack of soda/water/gatorade.

Just saying my DS about died when reality hit him for setting up his BOQ, he did not have to purchase furniture, or a tv. He did have to pay for cable. He did have to buy dishes, linens, etc. He spent about $800 the 1st few days. Again out of pocket because as a ROTC grad your pay will be delayed for @2 weeks after reporting. Report on the 28th, well you missed the 1st of the month paydate and now you are waiting until the 15th. Report on the 5th, you make it for the 15th, but you still have 10 days to survive without pay, and your USAA starter loan payment is due on the 7th.
~ I still laugh at him saying Mom do you know how much a small container of paprika cost? Me: Are we doing the Price is Right? @2.49 cents! Think about it...you will be cooking on your own. Salt, pepper, flour, sugar, oil, oregano, are going to be on that 1st shop and from a Price is Right perspective you are not going to walk out even as a single person with less than 300 on your 1st shop unless you of course want to eat Ramen!
~~ DH was ADAF for 21 yrs. 11 moves. When I could I would hand carry (DITY) all of my dry goods, and still it would cost me several hundred just to replace the staples that I could not DITY.

Take the loan, but be smart. Think long term about how you spend it. If you take it and spend every penny to pay down a student loan or buy a car ask yourself where will you get the money to pay for the move? How long is that lag time before reporting? Can you get a job to save up enough money to live for a month with maybe only 1 paycheck while you are now being hit with the USAA loan, and the credit card bill due for you moving to your 1st duty station? Will you need a new car, and how will you pay for that if your pay is delayed?

Finally, because DS was financially frugal, and thought about long term before signing the paperwork, he was able to live without worrying while his pay caught up. If he wanted to go to Popeye's for lunch 5 days a week, he could because he put 5K from that loan into his checking account instead of on his credit card at a higher rate. His friends did not have that option because they used the entire sum for student loans or a new car. He came home for Xmas that year and could pay for the ticket on his debit card, no interest. His friends had to buy their tickets on credit, not because they wanted the points or airline mileage, but because they used it all on the student loan or car and had no safety net.

JMPO, but I think too many people do not realize why it is called a CAREER starter loan. It is to start your career, and they know that when you move it will be VERY expensive. They expect that you will probably rent, and most residences (apts or homes) will require 1st and last month deposit. In NJ or VA, that could mean 3K just for an ehhhh apt., and not including the utilities or cable deposit.
~ I do not know if they still do it, but back when Bullet was ADAF, everytime we PCSd he was allowed to take a 1 yr loan for the amount of 1 mos base pay at 0% int. We always took it. Yet, the reality was that was how much it cost us to set up house again...in the course of 21 yrs and 11 moves, I can say that rarely my curtain rods and curtains fit from one home to the other....so what was I to do? You got it, bought new curtains and if you think the food bill is expensive, curtains even at WalMart are way more! Curtain rods, well don't get me started! And YES I dragged every flipping curtain rod and curtain I ever owned to each and every base, but still I had to buy new ones because either the rod or the curtain was not the right size, color, length, etc.
~~ Pretty sure Capt MJ is laughing and relating to that!

My last piece of advice is to do what DS did once his pay got straightened out, the 5K checking he put aside for his 1st PCS move was placed into a mutual fund money market checking acct for TDY. He has a traditional checking with USAA, but also a TDY account that he uses. For the AF, you get paid when you return from deployment/TDY. He is a C130J pilot. He can be sent TDY for 3 weeks where he needs to pay for rental cars, lodging and food, out of pocket until he returns and submits his receipts. Meanwhile, his car payment, mtg, credit card bills, utilities are all due. In essence, he was paying for both at the same time. That TDY acct allows him to live without impacting his household budget...he is now married.
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This is a great post with tons of useful information that I will refer back to in 3.5 years when my DS graduates. I know that as a MS1 these types of details for down the road are not even on our radar....now they are!
 
This is all terrific information and much-appreciated! My USMMA 2/C just applied for the USAA loan (which, interestingly, is currently at half the interest rate of NFCU's) and we were debating over how much to take out. At this moment he only needs enough to pay off his rings, and for some spending money. He does not need a car as he has one already (it's a hand-me-down '03 Jeep but he loves it dearly). He wants to take out the full amount anyway and invest most of it. I am leery of the whole thing but he IS a sensible young man... I guess it's time to cut the apron strings and let him do as he wishes, though I will be urging caution and prudence from the sideline. Glad to know that your young people used this money very responsibly and even built it into a lot more!
 
Can anyone answer this question?

If I take out this loan now, I have until 6 months after commissioning to start payments. Does the 2.99% interest start accruing on the loan from the date that I receive the loan or on the date that the first payment is due in November?
 
Non Ducor Duco said:
Can anyone answer this question?

If I take out this loan now, I have until 6 months after commissioning to start payments. Does the 2.99% interest start accruing on the loan from the date that I receive the loan or on the date that the first payment is due in November?
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Call USAA or Navy Federal, the primary sources. Google "USAA Career Starter Loan" to get USAA webpage.

All right, I'm in Siri mode, special deal today:
https://www.usaa.com/inet/wc/ent_rotc_landing_mkt?adID=VURL_ROTC

1-800-531-4610
 
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