Saturday, March 1, 2014

The Loan: Think about it.

Yes, it's been 6 weeks since my last post. I am aware of that. In the meanwhile, February came and went, all 28 days. Of much discussion as of late in the USMMA conversation sphere is "The Loan". The travelling salesmen- or, representatives,- from USAA will be on campus this month to give loans. With USAA, it's do-or-don't. Your next opportunity to borrow from this bank is in November. So USMMA Juniors should be giving some thought to their financial side. And why does this matter? USAA and Navy Federal allows a select group of 20-year-olds to borrow $32,000 at a low interest rate. (1.25% at Navy Federal, and 0.75% at USAA). There is a rhyme and reason for this: When Mids and Cadets at the other Service Academies graduate, they incur moving and living expenses for their first "duty station" before their junior officer pay begins. This is where "Career Starter Loan" gets its name. How can the interest rate be so low? Because of the service requirement at four of the Academies, and at USMMA, the maritime employment requirement. Also, graduates entering the armed forces who take the loan are registered for an "allotment deduction", insuring that USAA or Navy Federal gets their payments on time. While USAA has the lower rate, Nsvy Federal allows Mids take the loan on-demand after starting Junior year. You walk in, and identify yourself on a short form. Signature loan; it takes less than a week to clear. Another benefit to some is that Navy Federal has brick-and-mortar locations around the world (Guam, Japan, Bahrain, anyone?), and most Mids use Navy Federal as their primary bank (credit union). For the large strata of students who live between above the Pell Grant cutoff and comfortable living, there are immediate benefits to taking the loan. This includes plane tickets home for major holidays, the ability to purchase a car, and the ability to stop worrying about being short on cash. While plebe year is the most expensive year fee-wise, Senior year is where the expenses add up: Class ring-- an essential for Deck majors to knock on doors when they choose to work shoreside; Ring Dance, and Graduation Weekend*. From anecdotal evidence, a majority of Mids take the loan in order to finance Senior year. High school job money stretches only so far. * Parental generosity maximizes at this point. It usually declines hereafter. That said, there is no stipulation on how a midshipman spends the loan money. I have crafted itineraries that blow $30,000 in a 3-day weekend (Hint: first-class flight to Europe, party there on Saturday Evening; then fly to Bangkok, and do the same on Sunday evening; then fly back to New York, washed-up with empty pockets, a modern-day prodigal son). That scenario aside, I was informed by one Senior to budget at least $150 per week for going out on weekends. I took that advice with a grain of salt. Others take the loan to invest: For the Class of 2014, stocks were a good option; for this year's Junior Class, a safe option is to arbitrage the low-interest loan with higher-paying long-term CD's.

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