kai333444555
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Im wondering if i can get both the Navy Federal & the USAA cadet loan. Im planning on putting all of the money into a HYSA or a CD.
USAA & Navy Federal Loan
- Thread starter kai333444555
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While I am not 100% sure that this is expressly prohibited, one of the loan requirements is that you have your military paycheck direct-deposited to the bank that issues the loan. I think this would make it impossible. Also, from an underwriting perspective, the combined payments on both loans would consume over 35% of your 2LT gross pay. That probably exceeds their debt ratio guidelines.
CoffeeIVDrip75
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Take this for what it is worth. We advised our cadet to not take this loan.
A1Janitor
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I disagree with this guy adamantly.
USMC Crayons
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Pro Tip, this doesn't work the way you think it does. It would only work if this loan was interest only with a ballon payment at the 60 month mark, and even then would be a pretty goofy way to make some money ($2k ish per year at current rates on CD's and HYSA's). Since these loans are amortized and you have to pay principal and interest back immediately, there is no benefit. If you want to go buy a car, it's as good as it gets (especially with the lower rate that SA grads get). Otherwise, I don't really see the benefit in taking out the loan.
Also, even if you tried to apply for both loans, whichever bank pulled your credit 2nd would see the inquiry from the other and shoot you down. USAA and Navy Fed didn't just fall off the apple cart.
Agree 1000% on this topic.
I've been in finance for 25+ years, including running a publicly traded finance company. If I could borrow XYZ dollars at .75% interest I would take that deal and ask for more. I looked up this episode and it was 2022.....if one could take a $25k loan out & had put it in NVIDIA (I know...), they would have $122k....a CAGR of 70%. Even putting into a basic S&P index fund returns 7.33%/$30k, and that is low....
Currently USAA published rate is 2.99% for 60 months. That is basically 50% off the 5 year treasuries (which is what mortgages & most other long-term financial loans are based off of); there isn't a corporation out there that can borrow at that rate. The best unsecured personal loans I can find are all in the 8.5 - 8.99 range (and going up, as are Treasuries).....if you can access "free" money you take it....and 2.99% today is what .75% was in 2022. Stock market has returned an average of over 10% annually.....I look at this as a jump-start on your retirement fund. $25k invested at age 21, on a 5 year repayment, and then assume that DS/DD also maximizes 401k/Roth contributions + another 10-15% into a mutual fund/index fund/heck bitcoin or whatever, they are making VERY smart financial decisions & thinking long-term way before their peers are even considering it.
If I could lock in a 5 year unsecured note at 2.99% today, in the face of rising interest rates....this is a no brainer.
For USAA this is a win/win -- a Smart customer for life, guaranteed repayment...I see zero downside.
USMC Crayons
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Bravo. While some of his advice is solid and practical, his views on mortgages and life insurance are a disaster.
I look at it like forced-savings -- at current rates of 2.99% it makes zero sense to put into a CD, but into a Vanguard or similar near-zero cost index fund it is returning 4-8% (conservative) returns vs the outlay, upfront (meaning vs putting the same repayment into an index fund over the next 5 years).
It isn't debt if what you do with it returns a much higher yield than what you are paying. Dave Ramsey is 100% wrong on this topic.
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A1Janitor
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My son bought a sensible car for his last two years. Bought his ring. Traveled. Lived life. And invested it.
He didn’t make payments back until he was an ensign. And it is peanuts with his disposable income.
See my responses to others. Go meet with a financial advisor.....a real one, not someone that wants to sell you stocks. DON'T put it into a CD/HYSA...zero point outside of building your credit score. Put nearly-free $$ to work for you.
A1Janitor
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Over a year ago, you could take the loan at .75 and put the money in the bank’s savings account and earned about 5%. 7,000 profit.
The huge deal is the credit score. My son was over 800 when he graduated.
Agree 1000%. As soon as DD is eligible, she is going to put this to work.
USMC Crayons
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I don't necessarily disagree with the idea, but I wouldn't advise someone fresh out of college going in the hole $450 a month as a part of forced savings or expecting a certain return, especially now that active duty has access to a rocking TSP ( we didn't when I was active) but that's just me. In my mind, max out your TSP contributions where you have discretion and buy a house, especially if you are at a nice duty station. VA eligibility starts as soon as you hit 90 days post commissioning.
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Ideally, the thoughtful, intentional, self-disciplined cadet or mid pays off any higher-rate consumer debt, puts the max allowed into Roth 401(k) IRA product for year taken and sets aside enough for the next year to dump in when the calendar turns, puts chunks to work in long-term investment products after careful research and advice, stocks the emergency fund to a good level ready for launch after graduation, puts aside a little for fun money after graduation and things like custom Marine Corps multi-thousand dollar required uniform and sword package purchase. Plans to start TSP as soon as eligible. General thoughts. Not a licensed financial advisor thoughts.
Payback starts a few months after graduation. The money can start working almost a year prior to that. The class year loan offer is good, as I recall, for a year after first offer. They do not have to take full amount. No penalty for early payback. The monthly loan payment is easily handled by O-1, O-2 and O-3. This is a signature loan priced far, far below rates I could get with USAA and NFCU, even with my financial record. No collateral, just the knowledge they will be commissioned officers earning a decent salary the next 5+ years. If the contract still reads the same, in the fine print it says if the loan-taker is no longer on AD or otherwise does not meet the terms of the loan, the rate can jump to penalty rate levels, possibly 18%. Read all fine print. It’s a contract.
Used responsibly and smartly, it is a huge jump start if they are able to lay the foundations for 60+ years of growth around age 20, for a comfortable retirement, if they keep to a sound plan.
Unthinking, foolish cadets and mids blow it stupidly on consumer wants or leave it lazing around in a low-earning account that does not beat inflation.
All the USNA sponsor mids in our household have taken the loan (you do NOT have to take the full amount), and we have neutrally talked it through with them, pros, cons, risks, responsibilities. The one going to civilian medical school didn’t realize he would be on stipend and not active duty pay, so he dialed back the amount. The one facing a medical issue that could cause separation decided to wait for that decision, and took the loan late firstie year when they knew they had gotten cleared. One had an older brother with massive credit card problems and consumer debt, and her parents wanted her to take the loan and give half to brother, half to her parents (!!!!!!) for their own credit issues. She had never been exposed to common-sense money management. She did not take the loan as a mid, but very quietly, she took it after graduation and put it all to work for her own financial security. The loan payments come due, no matter the mid/cadet/grad’s circumstances.
This is a private financial transaction and choice not connected to the SA or government.
It’s all about self-discipline and prudent risk-taking - and a person’s comfort level and how they define needs vs.wants. Only in the last 20 years or so has a version of the loan become available to OCS/OTS grads, new USUHS O-1s, new CWO and LDO and other pre-comm program grads. If they had had this when I graduated from OCS, I would have leaped on it and done everything to make that money work hard for me and set me up right for a start as a JO. Of course, my parents started me keeping my own budget on lined accounting pages in HS and even more advanced financial tracking when I went off to college (before the Age of Apps), and I learned about needs, wants, self-discipline, budgeting, saving for something, emergency fund, never having credit card debt, etc. I always give credit to CAPT Merrill Peek, SC (Supply Corps), U.S. Navy, who ran the Junior Officer Monthly Professional Training at my first duty station. He told us exactly what to do to be smart with our money for long-term growth and wealth accumulation, and we would thank him in our 60s and he was long gone. This is me thanking him yet again. Sir, you showed me how money could accumulate, especially if I started early and practiced self-discipline. I am grateful every time I count my blessings.
There are and always will be differing points of view on money management. The important thing is to have a sound, diverse plan with short, medium and long-term goals, that balance personal risk profile with smart choices.
Payback starts a few months after graduation. The money can start working almost a year prior to that. The class year loan offer is good, as I recall, for a year after first offer. They do not have to take full amount. No penalty for early payback. The monthly loan payment is easily handled by O-1, O-2 and O-3. This is a signature loan priced far, far below rates I could get with USAA and NFCU, even with my financial record. No collateral, just the knowledge they will be commissioned officers earning a decent salary the next 5+ years. If the contract still reads the same, in the fine print it says if the loan-taker is no longer on AD or otherwise does not meet the terms of the loan, the rate can jump to penalty rate levels, possibly 18%. Read all fine print. It’s a contract.
Used responsibly and smartly, it is a huge jump start if they are able to lay the foundations for 60+ years of growth around age 20, for a comfortable retirement, if they keep to a sound plan.
Unthinking, foolish cadets and mids blow it stupidly on consumer wants or leave it lazing around in a low-earning account that does not beat inflation.
All the USNA sponsor mids in our household have taken the loan (you do NOT have to take the full amount), and we have neutrally talked it through with them, pros, cons, risks, responsibilities. The one going to civilian medical school didn’t realize he would be on stipend and not active duty pay, so he dialed back the amount. The one facing a medical issue that could cause separation decided to wait for that decision, and took the loan late firstie year when they knew they had gotten cleared. One had an older brother with massive credit card problems and consumer debt, and her parents wanted her to take the loan and give half to brother, half to her parents (!!!!!!) for their own credit issues. She had never been exposed to common-sense money management. She did not take the loan as a mid, but very quietly, she took it after graduation and put it all to work for her own financial security. The loan payments come due, no matter the mid/cadet/grad’s circumstances.
This is a private financial transaction and choice not connected to the SA or government.
It’s all about self-discipline and prudent risk-taking - and a person’s comfort level and how they define needs vs.wants. Only in the last 20 years or so has a version of the loan become available to OCS/OTS grads, new USUHS O-1s, new CWO and LDO and other pre-comm program grads. If they had had this when I graduated from OCS, I would have leaped on it and done everything to make that money work hard for me and set me up right for a start as a JO. Of course, my parents started me keeping my own budget on lined accounting pages in HS and even more advanced financial tracking when I went off to college (before the Age of Apps), and I learned about needs, wants, self-discipline, budgeting, saving for something, emergency fund, never having credit card debt, etc. I always give credit to CAPT Merrill Peek, SC (Supply Corps), U.S. Navy, who ran the Junior Officer Monthly Professional Training at my first duty station. He told us exactly what to do to be smart with our money for long-term growth and wealth accumulation, and we would thank him in our 60s and he was long gone. This is me thanking him yet again. Sir, you showed me how money could accumulate, especially if I started early and practiced self-discipline. I am grateful every time I count my blessings.
There are and always will be differing points of view on money management. The important thing is to have a sound, diverse plan with short, medium and long-term goals, that balance personal risk profile with smart choices.
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As of August 2024, the ACADEMY CADET rates were 0.75% for USAA Starter loans up to $36,000. The Navy Federal Credit Union rate for ACADEMY CADETS was 1.25% for loans up to $32,000. These 0.75% (actually 0.7478%) rates are just for Academy Cadets. * They can get these loans starting at the beginning of their junior year and continuing until one year after graduation. There is no prepayment penalty. They start paying them back in August after graduation and have 5 years at a fixed rate to pay it back. For someone taking the entire 36k, the payback would be $310 semi-monthly.
This is the information we were given. I know cadets who do very well with investment.
*ROTC and OCS/OTC have a higher 2.99% rate.
This is the information we were given. I know cadets who do very well with investment.
*ROTC and OCS/OTC have a higher 2.99% rate.
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TY! .75%.....just a no brainer. Between converting DD's 529 to Roth IRA, and the USAA loan, she will be well situated coming out of USAFA. Just tuck it away & forget about it for 50 years & viola, $2m+ retirement fund. Combined with a 800+ FICO it is a great head start.