I commissioned as a 2nd LT. in May through ROTC with a Masters degree and have seen many of my classmates take out the Career Starter Loan but am unsure as to whether or not I should do the same.
For context, I am a 25 year old Male who is wanting to buy a home in the next 2 years, preferably at my first duty station after BOLC (I begin BOLC at the beginning of 2025). My rough assets are as follows:
- Checking: ~$3,000
- Savings: ~$11,000
- Traditional IRA: ~$2,000
- Roth IRA: ~$28,000
- Taxable Brokerage: ~$30,000 (Invested in SPY. Have gained 15% unrealized profit)
- Debt: NONE!! 🙂
- Vehicle from 2015 with ~140k miles
- I have my own furniture, clothes, belongings, etc.
My dilemma (and understanding) is if I take out the career starter loan it could potentially decrease the amount in which I would be qualified as well as negatively affect the interest rate of the mortgage. There is also the cost benefit aspect of investing some or all of that money into the S&P500 and letting it grow.
I am curious as to what some of the Redditors in this sub have done in the past and what you recommend to a young and inexperienced LT.
Thank you!
I can't decide whether to take the Career Starter Loan or not
byu/AmmoTuff182 inMilitaryFinance
Posted by AmmoTuff182
8 Comments
What would you use it for? The whole purpose of the CSL is to help consolidate debt, help pay for stuff related to the initial expenses of your career (uniforms, supplies, security deposits on apartments, etc), or to be able to buy stuff at a lower rate (classmates of mine got the loan to buy a car since it’s a lower rate than conventional auto loans).
Some will tell you to invest it and make gains; with the volatility of the market lately, if you can stomach losses, go right ahead. But taking debt for the chance to make some earnings is not a risk I would take (but you have different tolerances).
If you don’t need it, don’t get it. It’s added debt for no reason.
What are the terms of the loan these days?
What’s the interest rate? I think it was 2% back in my day, in which case, fuck yeah.
I bought a car with it, in hindsight, I definitely should have invested almost all of it and then made minimum payments forever.
* No debt, good.
* Emergency savings, good.
* Liquidity from taxable brokerage, good.
* Retirement account(s), good but need to grow those.
In two years when you plan on buying a home, you’ll qualify for a VA loan. I don’t understand why you’d want a career starter loan now when you’re flush and don’t plan on buying a home in the next 18 months.
With my MBA background kicking in, **yes you should get a low interest career starter loan**, and buy bonds to profit the difference between the career starter loan and the bond yields. It won’t be much profit but should build your credit, potentially helping with that house purchase down the road.
Given your financial situation, I don’t see another reason for obtaining the career starter loan. You’re able to afford anything and everything you’d need.
I take it, max my ROTH IRA for the year if I haven’t, and put the rest in my brokerage. For 3%, its worth paying it back and getting a jump in the market.
Just be disciplined and pay it back as fast you can.
It’s cheap money, but that doesn’t mean you have to take it. If you have no real need to take out the debt, don’t bother. This thing is great for debt consolidation or buying a decent used car to get to BOLC, though many use it as a means to immediately balloon their lifestyle.
There’s no compelling reason to use this thing to leverage yourself into equities, and the annual net return of the full value of the loan when held in an HYSA would be in the neighborhood of $400-600 (loan size dependent), assuming rates don’t drop.
It’s not as sexy as leverage, but use your newfound O-1 paycheck to build up your stack of assets in your tax-advantaged accounts. You’re going to run into people who will swear up and down that it’s a winning bet to take the Career Starter Loan out for the express purpose of investing, but the risk just isn’t worth the reward.
tbh, keep your expenses low and build wealth.
If you’re kicking it around this much you probably don’t need it and are feeling some pressure to do what other ppl do because everyone thinks it’s the smart play. I didn’t need one, didn’t take it, never regretted it