Is it worth getting the USAA Starter Career Loan for military officer cadets, midshipmen or ensigns? This depends on your financial situation and the purpose of the loan. The USAA Career Starter Loans are available to cadets as well as midshipmen and officer candidates. These low-interest loans can help get you started on your military journey.
USAA Bank is offering newly commissioned military officers a loan with low interest rates to help them begin their careers. Learn about the significant benefits available to certain members of military communities. Spencer, a US Air Force company grade officer, wrote a guest post for USAA Career Starter Loan.
You’ll be excited to get your commission, whether you’re in ROTC. You will be a leader of some extraordinary people as a newly commissioned US military officer. Access to USAA financial products and insurance services, is just one of many benefits that come with military service. Nord has written extensively for USAA. She even got the chance to attend their recent blogger conference. USAA Bank has many exclusive benefits available to its military customers. It’s known by other names, such as the cadet, commissioning, or “cow loans” at West Point.
The interest rates are low. For ROTC, OCS/OTS, and military academy cadets, the rate ranges between 0.75% and 2.99%.
The USAA loan for cadets is typically between $25,000-$36,000. The USAA Career Starter program is open to all cadets, midshipmen, and officers who commission through the Reserve Officer Training Corps of the Army/Air Force, Navy/Marines ROTC, or OCS/OTS. USAA’s terms and conditions can change annually, so it is best to call or contact them for the most up-to-date information.
If you’re a ROTC midshipman or cadet, you may apply for a loan 12 months in advance of commissioning. If you’re an OTS/OCS participant, you may do so 4 months in advance. If you are already commissioned, then you can apply up to a full year after the date of your commissioning.
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What is a USAA Career Starter Loan?
As you get closer to graduation, financial institutions may reach out and offer a range of loan options. USAA, Navy Federal Credit Union and NFCU offer a ‘Career Starter Loan’ to newly commissioned military officers. The low-interest loans provide a way to accumulate wealth and pay down higher debts. Loans are typically between $25,000-$35,000, with rates of interest below 2.99%. Career starter loans are a great way to start a military career and invest in your family and future.
Who Can Apply for a USAA Career Starter Loan?
All cadets require qualifications for Career Starter loans, new officers and midshipmen who have completed a service academy, ROTC or OCS/OTS program and will be entering active service. USAA, NFCU and other financial institutions may contact you. But if you’re genuinely interested, it is best to reach out directly. USAA & NFCU will require you to sign up for their services, open a check-writing account, and then link your paycheck with that account.
Understanding the Loan Details
Eligibility Criteria: In order to qualify, you will need to join USAA. USAA membership includes active military, veterans and their family members. Most likely, you’ll need to open a USAA check-paying account.
Loan Amounts and Interest Rates: The amount of the loan and interest rate vary. ROTC/OCS/OTS students are usually eligible for a loan of up to $2,500 at a competitive annual percentage rate. This APR has been historically around 2.99%. If you are graduating with a degree from a Service Academy, you may qualify for a $35,000 loan at an APR that is even lower.
Optional Loan Flexibility and Payment: Deferment A benefit of the USAA career start loan is that you can defer your first payment for a certain period. You will have a grace period, usually around six months, from when you receive your commission. This allows you to adjust to your new position without being under immediate pressure from loan payments.
What are the advantages/best uses?
The Career Starter Loans offer savings of thousands of dollars when compared with the traditional loan rate of 6%. Career Starter Loans do not require any collateral, as they know that the federal government employs you and has been for at least four years. The loans could be a good way to pay down high-interest student loans and credit card debts, buy a reliable automobile, or invest in a Roth IRA account or TSP to start investing for retirement. Career Starter Loans are also a good source of income for paying for living expenses, uniforms and other startup costs. You can borrow any amount, but be sure to use credit responsibly.
USAA Career Starter Loan for Car
This loan could be an excellent tool for a brand-new officer to help them get started. You can use this loan to pay off high-interest debts you have accrued in college, such as student loans, credit cards, and car loans. But beware of getting sucked into a cycle. This isn’t a loan for you to spend on a brand-new BMW, Audi or other luxury car.
No early repayment fees are charged on this loan. So you can borrow the full amount of $25,000, pay back the first $15,000 immediately, then use the remaining $10,000 to pay your credit card debt, start up your PCS, or do anything else that you want. This loan is not free money.
Monthly payments for five years are $471 ($25,000 at 2.99%). This could be almost one-quarter of the take-home pay for a 2nd lieutenant or ensign who is not paid BAH. This loan is only worth it if there’s a clear plan of what you want to do with the money. Believe me when I tell you that for the next 5 years, you will miss almost $500 every month.
What To Do With USAA Cadet Loan
In November 2008 I applied for a USAA Starter Loan. In November 2008, I was still a junior at college and approximately 18 months away before commissioning. It was an incredible feeling to see $25,000 in the bank. After completing the loan application, it took about one week for the money to be deposited in my USAA bank account.
Within a week, I deposited the funds into my USAA checking account. I then started thinking about what I was going to do with them. I was certain I wanted to invest the bulk of my money. I knew that at 2.99%, I could take advantage of the low rate and profit through arbitrage.
What are the advantages/best uses?
In comparison to traditional loans with interest rates as high as 6%, Career Starter Loans could save newly commissioned officers up to thousands of dollars. Career Starter loan does not require collateral as long as you are employed with the federal Government for atleast 4 years.
The loans are a great option to help pay down student debts with high interest rates, to purchase a reliable automobile, to invest in a Roth IRA, or TSP, to start investing for retirement. Career Starter loan can also help pay for uniforms and start-up costs. No limit exists to the amount you can borrow, but it is important that you are credit-savvy and aware of all the risks.
What are the risks?
To avoid getting into further debt, it is essential that you borrow only what you really need. Keep in mind that the security clearances you receive and your career options are partly dependent on your credit. Stay within your budget so that you can grow your financial assets, investments and debt ratio without going overboard.
USAA offers a Loan to Start a Career, for Cadets/Midshipmen who are commissioning through ROTC or the Army, Air Force and Naval Academy. ROTC candidates and OTS graduates can borrow up $25K within 12 month of their commissioning at a 2.99% Annual Percentage Rate (APR).
Borrowers can repay their loan over a period of up to five year and defer payment for six months following commission. No penalties are imposed for paying off the loan early. To find out more about USAA’s Careerstarter Loan or to apply, please visit the USAA site. You can also call their Careerstarter Dept. Directly at 1-800-531-4610.
Navy Federal Credit Union (NFCU)
NFCU Career Launch Loan is available to academy cadets or midshipmen. (Not ROTC/OTS Graduates) A 60-month loan for up to $30,000 at 1.25% annual percentage rate. You can delay payments up to 90 days after commissioning. The loan also has a five-year repayment period. Navy Federal also offers a ROTC/Delayed Entry Program, which gives juniors or seniors who are in ROTC and DEP access to the same membership services and career starter benefits that are available to active-duty service members. To learn more about NFCU’s Career Kickoff or ROTC/DEP offers, please visit NFCU’s website. You can also call 1-888-842-6328.
Investing the USAA Cadet Loan
With a CD ladder, you can have access to more money and maximize your interest rates. I set up mine so I’d receive a payout every year for five years. All the CDs purchased in November 2008 through USAA, and another bank at a time when interest rates are much higher today. I invested $2,000 in each CD. The following are the returns:
- One Year CD – 4.25 %
- Two-Year CDs – 4.25%
- 3-Year CDs – 4.5%
- 4 Year CDs – 4.75%
- Five Year CD – 5%
otal investment of $10,000 in CDs You can see I was already earning money on my 2.99% mortgage. As I only made 2%, I barely covered inflation, even in years with low inflation. So I wanted to maximize my return. Phase 2 of my plan was not started until January 1, 2009.
I invested the remaining $15,000 from the loan into: Investment Funds for $3000 International Stocks Stock Mutual Funds $6000 Bond Mutual Fund 3000 US Dollars I held the funds in my account for 14 months. I sold my funds at $17,000 as I neared my graduation. After paying my USAA loan interest and taxes, I made 10%.
My Department of Education Direct Ed student loans were paid off and I had almost a quarter of it gone before I ever started working. This loan was also charged over 6% so it makes perfect sense to pay them off using a 2.99%. I have been getting $2000 in interest and CDs every year since November of the last three years. My CD ladder still has two more maturing this and next year.
As I am able to access the funds and give only a fraction of the accumulated interest I have, I consider these CDs the foundation for my emergency fund. As I reach the maturity of each CD, I transfer the cash to a savings account. This way, my liquid reserve fund grows annually. For a true ladder of CDs, I should invest the money each time a CD matures into a new 5-year CD.
On one hand, being able to access $25,000 at 3% cash is a fantastic deal. Making $471 monthly payments is not a good deal. I have paid off the loan in two years. Only half-way there! Considering the very low interest rates on CDs and Savings Accounts, I can no longer make this arbitrage. You should take this loan out if your loan has an interest of over 3%. If not, you should put your $471 a month (or just round up to the nearest $500) in your emergency account until it’s filled to six months of your expenses. You can deposit $416.66 a MONTH into your Roth IRA if you are not saving money.
Additional Financial Resources
Military scholarships and grants may be offered by a number of companies and organizations to the military and their families. Scholarships and grants can be an excellent alternative to Career Starter Loans, as they are not repaid. They also serve a wider range of military personnel.
Servicemembers Civil Relief Act, established by the Federal Government in 2003, was designed to reduce the financial burdens of military members who are on active service and away from their homes. The law offers active duty, reserve, and National Guard military personnel a number of legal protections that aren’t available to the public. SCRA benefits include a cap of 6% on interest rates, terminations of leases, protections from eviction and low interest and fees on credit cards opened prior to active service.
Military Lending Act (MLA ), a law passed by the government, protects servicemen and women on active duty, such as those who are in the Guard and Reserves, and their dependents, from unfair lending practices. MLA provides protection for debts acquired during service. This is in contrast to SCRA, which only covers debts acquired before service.
MLA benefits include limiting interest rates to 36%, prohibiting arbitration clauses and waivers of rights in loan agreements, as well as limiting fees, credit insurances, or any other credit-related product sold during the transaction. The MLA includes most consumer loan products such as payday loans or vehicle title loans. However, it excludes mortgages, home equity loans, mortgage refinancing, and vehicle purchase financing.