Officer Career Starter Loan Question

Stealth_81 said:
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
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I also know someone who has done this. Seems to work out pretty well if you live frugally in order to pay everything off ASAP.
 
MaybeMidMom said:
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!
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My DS took the full amount. He didn't need a vehicle as his Jeep was a 2007 model that he has subsequently sold since he was going overseas. (Offered to sell it to me but I got this thing about paying for the same car twice! :D) He used a portion to pay off student loans, purchase his Marine uniforms, start an IRA, get his apartment at little more established than his college place, and still hand plenty on hand (which I'm hoping gets added to the IRA each year). I think he's handling it wisely, and he certainly hasn't called me for money, so I think it is a good deal. So does he.
 
Capt MJ said:
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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Lol thanks. I planned to call them in the next few days anyways since ive already started the process and am a document or two away from finalizing things, but since people were sharing about their experiences I thought I'd ask.
 
Non Ducor Duco said:
Lol thanks. I planned to call them in the next few days anyways since ive already started the process and am a document or two away from finalizing things, but since people were sharing about their experiences I thought I'd ask.
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I think I know the answer, based on past experience, but in serious financial matters, you should have that discussion and get answers from a private source.
 
I would discourage using the Career Start Loan to pay off student loans for the following reasons. First, interest from student loans is tax deductible up to $2500 (subject to income limits). Second, if for some reason you are separated from the military before paying off the loan (medically DQ'ed), student loans offer the options of deferments and forbearance to help you avoid default.
 
txpotato said:
I would discourage using the Career Start Loan to pay off student loans for the following reasons. First, interest from student loans is tax deductible up to $2500 (subject to income limits). Second, if for some reason you are separated from the military before paying off the loan (medically DQ'ed), student loans offer the options of deferments and forbearance to help you avoid default.
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Agree with this. You also lose the option of student loan forgiveness programs.
 
I generally agree with AROTC-dad and txpotato on not paying off student loans. However, when the amount is relatively small (DS loans were just $7500) then other factors may become more important. In his case, tax deductions would have been very small and loan forgiveness was never going to be an issue. Each person needs to run the numbers and determine what's best for them.... but in general, not paying off student loans is a good idea.
 
Third reason is what I have stated before...that if you separate before your date is up than USAA has the right to up your interest rate big time. IE you go to UPT, wash out and the AF decides that they will RIF you instead of converting you to a new AFSC, than USAA's loan rate changes since you are now considered a higher risk.
~ Yes, I know that this is a rarity to occur, but nobody can predict the future.
~ The student loan rate in that case would be lower.

My DS's wife has student loans, but because he did not take the full amount he has had the ability to pay more of her principal off monthly due to the fact that he owed less to his starter loan. They purchased a home when he had only 2 1/2 yrs in. Thus, for those last 2 yrs of his repayment he was able to do the long form for taxes and deduct her interest from her student.

There is also another reason to think about how much to take, but it is from a longer term aspect...not too long for many. As I stated my DS purchased a home within 2 1/2 years of commissioning. As a Realtor I can guarantee you that the mtg lenders will look as your financials including your debt ratio along with your credit. The higher balance can make your monthly debt ratio higher than you want it to be to qualify for that dream house.
~ Yes, you will qualify for a VA loan, but the amount will vary due to that ratio.

For those taking it for investment purposes, in a way it is good and in a way it is bad. If you take it all and invest into something that will hit you with short term capital gains because you did not place anything for a rainy day than you can lose any gain from the investment due to the high tax rate.
~ IE you own a 2003 Jeep. Right now it has 69K miles, but assuming the 1st yr or two you will do a lot of moving. My DS moved to TX from VA, VA to Ark, Ark to TX within 2 yr. On top of that because they PCSd during the xmas season, instead of paying expensive airline tickets they drove both cars up to VA and drove to TX after the holidays. Now add in day to day life. That car with 70K miles could easily have 100K before they hit the O2 pay jump, which than leaves them with do they pay a couple of grand on their credit card to repair it or purchase a new one, either way they have another debt on their hands while paying off the loan.

Honestly impo, you don't go wrong either way. The 01 yrs are easy to live within your budget.
 
Sir,

I saw your experience with USAA career starter. I am a junior ROTC contracted cadet and am considering the loan. Howeve, I have the posibility of attending medical school and receiving an educational delay. If I receive the educational delay I will commission but will not be coming to active duty until later. Would these factors affect the USAA career starter loan and would a longer deferrment be possible? I would be entering with a higher rank (O-3) if I do get the educational delay.
 
curioscadet said:
Sir,

I saw your experience with USAA career starter. I am a junior ROTC contracted cadet and am considering the loan. Howeve, I have the posibility of attending medical school and receiving an educational delay. If I receive the educational delay I will commission but will not be coming to active duty until later. Would these factors affect the USAA career starter loan and would a longer deferrment be possible? I would be entering with a higher rank (O-3) if I do get the educational delay.
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Exercise extreme caution. Contact USAA Career Starter Loan team to discuss and understand the loan contract terms as they apply in this case. If you have the loan brochure in your ROTC dayroom or lounge, call that number. If you don’t have it, call the general number and ask for the Bank and Career Starter Loan people.

I worked for USAA and very closely with this program until 2 years ago, so my info may be dated - hence my recommendation to call the primary source. The policy for many years has been to start the repayment about 3 months after graduation, when the new officer would be expected to be receiving active duty O-1 pay. The terms of the loan require Direct Deposit of DFAS pay to a USAA account; loan payments are taken out by automatic transfer.

I was very familiar with USNA grads going to med school. If they went to USUHS, all was well, because they receive AD pay. For those going to civilian med school, four-year deferments of the loan repayment period were not authorized. The loan rate is already so low, and repayment can already be deferred from 2/c year, that a potential 6-year deferment was not considered a prudent business decision.

I did hear on occasion that NFCU would grant longer deferments, but I don’t know how that applied to ROTC mids and cadets. Their loan is structured the same with Direct Deposit, etc.

Similar to most loans, especially no-collateral signature loans such as this, there is a clause that jumps up the interest rate to something like 18% in the case of default or not meeting the terms of the loan.

I am calling out to @hornetguy who I believe now works at USAA to help you out.

I can’t emphasize enough for you to call and get direct answers from the loan provider.
 
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