How to Smartly Use the USAA Career Starter Loan (2024)

USAA Bank offers newly commissioned officers a low-interest loan to help them start their career. Here’s what you should know about a significant benefit for select members of the military community.

This guest post on the USAA Career Starter Loan was written by Spencer, a company grade officer in the US Air Force. Spencer is documenting his journey to financial independence using his military pay and benefits at theMilitary Money Manual.

Whether you’re in ROTC, at one of the Service Academies, or attending an officer candidate school, the time before you commission is exciting! You’ve worked hard for your entire life to get to this point. As a newly commissioned officer of the US military, you are going to do some amazing things and lead some incredible people.

One of the many benefits of military service is access toUSAA’s line of financial products and insurance services. Nord has written extensively about USAA and even got to attend their blogger conference recently. USAA Bank offers many exclusive benefits to its military customers, one of which is the Career Starter Loan, also known as the cadet loan, commissioning loan, or, at West Point, as the “cow loan.”

Who Can Apply for a USAA Career Starter Loan?

The USAA Career Starter Loan is offered to cadets, midshipmen, and officer candidates. ROTC cadets can take it out a year before or after they are scheduled to graduate. Academy cadets can usually access it in their junior year. Officer candidates usually have to be within a few months of their commissioning date to access the loan.

What is the USAA Career Starter Loan?

This is a personal loan offered by USAA Bank to selected members of the military.

The maximum loan amount ranges from $25,000-$35,000, at interest rates from 0.5%-2.99%. You can take any amount of the loan out up to the maximum and there are no early repayment penalties.

Payments are deferred until 6 months after your scheduled commissioning date. The loan is scheduled to be paid off in 5 years. For $25,000 at 2.99%, you’re looking at payments of $471 per month for 5 years starting 6 months after you commission.

This is a signature loan, meaning that there is no collateral. If you don’t commission, stop direct depositing your military paycheck into your USAA Free Secured Checking Account, or if you become late on your payments to USAA, the interest rate can jump to 18%. Ouch. So don’t get kicked out of your commissioning program in your senior year!

How to Apply for a USAA Career Starter Loan

Applying for the loan is easy:

• Become a USAA member so that you can gain access to all USAA products and services. Creating a member account with USAA is free
• Open a USAA checking account. Set up a USAA Bank checking account for direct deposit of your military pay. You must also have at least one direct deposit of your military pay into your USAA Bank checking account to be eligible to apply.
• Apply for the Loan. Call USAA at 800-531-4610 to start the process.

My Experience Applying for the USAA Cadet Loan

I first heard about the loan in 2008, as a sophom*ore in Air Force ROTC. The seniors were approaching their graduation and commissioning and were talking about the cars they were going to buy with “this awesome military-only loan from USAA.” I was excited. I had dreams of an awesome spring break vacation, maybe a summer trip to Europe, and buying a BMW before I reported to my first assignment.

In November 2008 I applied for and was approved for the loan. It was pretty exciting seeing $25,000 sitting in my checking account. I didn’t know what I wanted to do with the money just yet, so I let it sit in there until January 2, 2009.

After discussing what to do with the loan with a Charles Schwab financial advisor and well as my father, I decided I would invest $15,000 of it into the stock market and $10,000 into a CD ladder. At the time, the stock market was crashing and CD rates were 4-5% for all ages of maturation.

While I don’t believe in timing the market, I actually entered at a pretty good time. I let the money grow until my graduation in 2010. I sold my shares and used the proceeds to pay off one of my student loans which was at 6.8% interest. The $10,000 CD ladder I kept and used as the basis for my emergency fund as I entered active duty. (More detailshere.)

Now, almost 4 years after taking out the loan, I’ve finally paid it down to under$10,000. I should have the remainder paid off by Dec 31, 2013, almost 2 full years early, saving me hundreds in interest.

The Pros and Cons of a USAA Career Starter Loan

How to Smartly Use the USAA Commissioning Loan

There are many smart ways to maximize your mileage from the loan. If I was doing it again, here’s how I’d approach it:

1. Pay Off any High Interest Consumer Debt

If you have any consumer debt (credit cards, auto loans, etc) with a higher interest rate than 2.99%, take as much of the loan as you need to pay down that debt. Besides getting you a lower interest rate, it may get you a lower minimum monthly payment as well, because it will be spread over 5 years. This goes especially for ROTC students or officer candidates who have student loan debt. Get Sallie Mae or Direct Ed off your back and lock in a low rate with USAA. Student loans are usually paid back in 10 years, so by taking the USAA loan you’ll force yourself to pay them back in just 5 years, getting you debt free faster.

2. Avoid Credit Card Debt or other Loans

If you have no savings at the start of your military career, the USAA loan is a good way to stay out of credit card debt. The military pay system is often delayed or FUBAR when you first enter active duty, so you’ll usually have to cover expenses for a month or two before you start getting regular 1st and 15th paychecks. Don’t treat the money as free though! I would only take out $5000 to cover food, rent, gas, and other sundries and then pay it off as fast as I could once I start getting paychecks.

3. Buy a Reasonably Priced Car

If you don’t have a car, you can use the loan as a car loan, but some of the car loan interest rates are even lower than 2.99% these days. Additionally, don’t blow all of the $25k on a new BMW! See what you need, shop around a bit, and for the love of God, don’t buy new unless you enjoy taking a 25% depreciation as soon as you drive off the lot. There are tons of quality used cars out there for under $10,000, and even some really nice ones under $5000.

4. Down Payment on a House

If you’re thinking about buying a house, the money can be used for a down payment. This can be an attractive option, because the only debt I think is smart debt is asset backed debt. I haven’t heard of many officers doing this, but it is an option. Just make sure you do your research on rent vs. buying in your area, especially when you know you’ll be moving in a few years.

5. Don’t Take the Loan if You Don’t Need It

If you don’t have any debt and you have some savings to cover your first month or two on active duty, I wouldn’t take the loan. Think about what you could do with an extra $471 a month.

You could:

• Fully fund your Roth IRA ($541.66 per month 2022)
• Put the money away in a savings account and buy a $18,000 car in cash in 3 years
• Take your spouse out for a $100 dinner every week
• Buy a plane ticket home to see the family
• Buy a lot of beer

Can you Pay Off a USAA Career Starter Loan Off Early?

Yes. There is no prepayment penalty either. However, because the loan is offered at such a low interest rate, many loan holders focus on paying off other higher interest debt first.

What Other Benefits Does USAA Offer?

As a USAA member, you have access to several other services including insurance, investments, and financial planning advice. Products and services are available to U.S. military members and veterans, pre-commissioned officers, and spouses and children.

USAA’s team of professionals can also help you before, during, and after deployment.

Lessons Learned

Looking back on my experience, paying off my high-interest student loan with most of the USAA Career Starter Loan was probably one of the smartest financial decisions I’ve made. Timing the stock market was just lucky. Not buying the classic “lieutenant-mobile” was also a good move on my part.

If I could do it again, I probably would take the loan out again, because of my student loans. But if I was smart enough to graduate without the student loan debt, I probably would not take the loan out. How about you? Did you take the loan out? If you did, how did you use it?

USAA also offers members various insurance products, including auto, life, home, umbrella, and more, in addition to financial products and services.Ready to join USAA.com, and request your Career Starter Loan?

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