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  • \"Career Starter Loan\"

    Have you guys ever heard of this sort of thing?  What would you tell him?  I saw a thread over at Bogleheads of a young guy (who is apparently in the military) being offered a "career starter loan" at a ridiculously low rate.  He's a student and doesn't have a job yet.  This is what he asked:


    I am 20 y/o and my college has a special offer for students to take out a 36k loan at a 0.75% interest. Yes, 0.75%. I plan to open a Roth and max it out but not exactly sure what to do with the rest. Is there any suggestions to where to put this much money for long term gains? Thanks




    My initial thoughts are no way, don't take it.  That's coming from someone who has lots of low interest loans in my name right now and I see this sort of loan as a slippery slope.  Even if he invests it wisely now and comes out way ahead in the end, the risk is that he'll continue to have this mindset of "oh it's low interest debt, so it's good debt."


    Funny thing is that a bunch of people are replying to him saying to "definitely" take it.  Seems like a bad idea to me.  Maybe if you're certain that you're someone who will never borrow money for anything else the rest of your life and you definitely only use it to put in the stock market and let it ride for 30+ years it would be smart.  But, he's 20 years old.  Chances are he will end up using it for something dumb like the rest of his class mates.

  • #2




    Have you guys ever heard of this sort of thing?  What would you tell him?  I saw a thread over at Bogleheads of a young guy (who is apparently in the military) being offered a “career starter loan” at a ridiculously low rate.  He’s a student and doesn’t have a job yet.  This is what he asked:


    I am 20 y/o and my college has a special offer for students to take out a 36k loan at a 0.75% interest. Yes, 0.75%. I plan to open a Roth and max it out but not exactly sure what to do with the rest. Is there any suggestions to where to put this much money for long term gains? Thanks




    My initial thoughts are no way, don’t take it.  That’s coming from someone who has lots of low interest loans in my name right now and I see this sort of loan as a slippery slope.  Even if he invests it wisely now and comes out way ahead in the end, the risk is that he’ll continue to have this mindset of “oh it’s low interest debt, so it’s good debt.”


    Funny thing is that a bunch of people are replying to him saying to “definitely” take it.  Seems like a bad idea to me.  Maybe if you’re certain that you’re someone who will never borrow money for anything else the rest of your life and you definitely only use it to put in the stock market and let it ride for 30+ years it would be smart.  But, he’s 20 years old.  Chances are he will end up using it for something dumb like the rest of his class mates.

    Click to expand...


    Doesnt seem real. Where can one get such a low rate (basically overnight fed fund rate), I'd be worried about a scam. If not I'd take it to the bank.

    Its one thing to be worried about debt, its wholly another to be worried about gifts, and this would be a gift even if put in just bonds. Obviously it would have to be invested or used to pay off say student loans...but this doesnt come around often.

    Comment


    • #3







      Have you guys ever heard of this sort of thing?  What would you tell him?  I saw a thread over at Bogleheads of a young guy (who is apparently in the military) being offered a “career starter loan” at a ridiculously low rate.  He’s a student and doesn’t have a job yet.  This is what he asked:


      I am 20 y/o and my college has a special offer for students to take out a 36k loan at a 0.75% interest. Yes, 0.75%. I plan to open a Roth and max it out but not exactly sure what to do with the rest. Is there any suggestions to where to put this much money for long term gains? Thanks




      My initial thoughts are no way, don’t take it.  That’s coming from someone who has lots of low interest loans in my name right now and I see this sort of loan as a slippery slope.  Even if he invests it wisely now and comes out way ahead in the end, the risk is that he’ll continue to have this mindset of “oh it’s low interest debt, so it’s good debt.”


      Funny thing is that a bunch of people are replying to him saying to “definitely” take it.  Seems like a bad idea to me.  Maybe if you’re certain that you’re someone who will never borrow money for anything else the rest of your life and you definitely only use it to put in the stock market and let it ride for 30+ years it would be smart.  But, he’s 20 years old.  Chances are he will end up using it for something dumb like the rest of his class mates.

      Click to expand…


      Doesnt seem real. Where can one get such a low rate (basically overnight fed fund rate), I’d be worried about a scam. If not I’d take it to the bank.

      Its one thing to be worried about debt, its wholly another to be worried about gifts, and this would be a gift even if put in just bonds. Obviously it would have to be invested or used to pay off say student loans…but this doesnt come around often.
      Click to expand...


      Apparently they figured out that its a USAA loan of some sort that's often offered to military students/grads?

      Comment


      • #4
        Well it depends on the other terms, like the term of the loan for instance :P .

        But seriously, check for the fine print for things like introductory interest periods, allowed uses of funds, etc.  I think it could make sense though.

         

        Comment


        • #5
          My son is a Cadet at the Air Force Academy and has been offered this loan, as are all Academy students during their Junior year.

          He is a pretty sharp, motivated kid and has an early appreciation for and interest in personal finance.

          Though he makes very little income as yet, he has been saving 25% of every paycheck and started a Roth IRA Freshman year that he maxes out to his ability.

          He asked me for advice regarding the loan and I told him to borrow only enough to get himself to the $5500 max contribution to his Roth IRA for this year and next year.

          He is, however, 19 years old, and of course also wants to take out another $5000 more to buy his own parachute rig and for world travel during the 60 day leave period after graduation.

          I told him to calculate the estimated cost/jump ; )

          Hard for me to come down too hard on this last splurge when he is saving us so much in tuition.

          Would be very interested in other opinions regarding using this loan effectively.

           

           

           

           

          Comment


          • #6




            My son is a Cadet at the Air Force Academy and has been offered this loan, as are all Academy students during their Junior year.

            He is a pretty sharp, motivated kid and has an early appreciation for and interest in personal finance.

            Though he makes very little income as yet, he has been saving 25% of every paycheck and started a Roth IRA Freshman year that he maxes out to his ability.

            He asked me for advice regarding the loan and I told him to borrow only enough to get himself to the $5500 max contribution to his Roth IRA for this year and next year.

            He is, however, 19 years old, and of course also wants to take out another $5000 more to buy his own parachute rig and for world travel during the 60 day leave period after graduation.

            I told him to calculate the estimated cost/jump ; )

            Hard for me to come down too hard on this last splurge when he is saving us so much in tuition.

            Would be very interested in other opinions regarding using this loan effectively.
            Click to expand...


            Certainly sounds like you have a very smart kid.  I didn't save a dime when I was 19.  But, then again, my parents didn't teach me anything about personal finance either.  My mom convinced me to get a credit card to "build a credit score."  That was about all the financial education I received.  So, good work on your part

            I guess if being taken out by someone like your son and being placed immediately into a tax protected account like that and invested wisely (a simple low cost 3 fund portfolio for instance), I could see this loan as a form of forced savings.  They will automatically withdraw the payments for it from his paycheck when he's earning a paycheck and I'm assuming it would be paid in full by time his service is up?  If those conditions are met, I could see it being a smart thing.  But, then again, if the market tanks right before he starts paying it back and he could have instead used those payments to buy into the market at low prices, it might have been better not to take it?  Hard to predict I guess.

            Comment


            • #7




              My son is a Cadet at the Air Force Academy and has been offered this loan, as are all Academy students during their Junior year.

              He is a pretty sharp, motivated kid and has an early appreciation for and interest in personal finance.

              Though he makes very little income as yet, he has been saving 25% of every paycheck and started a Roth IRA Freshman year that he maxes out to his ability.

              He asked me for advice regarding the loan and I told him to borrow only enough to get himself to the $5500 max contribution to his Roth IRA for this year and next year.

              He is, however, 19 years old, and of course also wants to take out another $5000 more to buy his own parachute rig and for world travel during the 60 day leave period after graduation.

              I told him to calculate the estimated cost/jump ; )

              Hard for me to come down too hard on this last splurge when he is saving us so much in tuition.

              Would be very interested in other opinions regarding using this loan effectively.

               

               

               

               
              Click to expand...


              I cant imagine the pressure to do the right thing at 19-20 years old with a big check in hand like this. It would depend on situation but definitely pay down other debt first, and then invest every penny or avoid other debt (educational). Those are great uses. Otherwise dont blow it.

              Comment


              • #8
                When my wife started her job (anesthesia) her department gave her a $75k loan w/ a 0% interest rate. Payback was $25k/year over 3 years which is frankly right around her bonus amount.

                Yes please.

                Comment


                • #9
                  I wouldn't take it unless I truly needed it. I certainly don't think I'd take out a loan to invest, regardless of the terms.

                  Comment


                  • #10




                    I wouldn’t take it unless I truly needed it. I certainly don’t think I’d take out a loan to invest, regardless of the terms.
                    Click to expand...


                    Not even 0%?

                    Comment


                    • #11
                      The career starter loan from USAA for cadets and midshipmen is legit. I took one out myself about 20 years ago.

                      It sounds like Blade Runner’s son has a solid plan for his loan.

                      Blade Runner, is your son in Wings of Blue by chance?

                      Comment


                      • #12




                        The career starter loan from USAA for cadets and midshipmen is legit. I took one out myself about 20 years ago.

                        It sounds like Blade Runner’s son has a solid plan for his loan.

                        Blade Runner, is your son in Wings of Blue by chance?
                        Click to expand...


                        Though he tried out, he was not selected. It is very competitive, as one can imagine.

                        Skydiving has become a passion for him though, so he and several classmates regularly go to a private jump school outside of Colorado Springs.

                        He even persuaded me and his older brother to try it out 2 months ago.

                         

                        It inspired me to seriously reevaluate our Estate Planning ; )

                        Comment


                        • #13







                          I wouldn’t take it unless I truly needed it. I certainly don’t think I’d take out a loan to invest, regardless of the terms.
                          Click to expand…


                          Not even 0%?
                          Click to expand...


                          Probably not. I just don't like owing things to people.

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