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College Students and Recent Grads, Student Loan ReFi

5 Options for Enlisting in the Military to Pay for College

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Lacey Langford was taking classes at a local community college when she realized she’d rather work full-time to save money for school. “My father was an Army officer, and I decided I wanted to join like him,” says Langford, now 38, who lives in Summerfield, NC. “He convinced me to at least talk to the Air Force recruiter. That was it. I realized it would be better for me and I committed to the Air Force.”

Three years into her active duty, Langford started taking classes at night, using the Air Force’s Tuition Assistance program and the GI Bill. She later separated from the Air Force and completed her degree at the University of North Carolina at Wilmington. She estimates that the GI Bill paid for 100 percent of her tuition, 85 percent of her books, and about 40 percent of her room and board expenses. “I am happy with the way it worked out, walking out of school with zero student loan debt,” says Langford, who today is a financial planner. “I also gained valuable work experience and discipline. The discipline alone has reaped major rewards.”

With the average 2015 graduate coming out of school with more than $35,000 in student loans, being able to get a degree without all the debt is appealing, to say the least. Langford’s path to tuition coverage is one way to do it, but the military offers a variety of ways to pay for schooling or even to pay back student loans. Here are a few options:

1. ROTC Scholarships

Some schools offer the opportunity to apply for a Reserve Officers’ Training Corps (ROTC) program that could pay for nearly all of your tuition, fees and books charges for four years of school, in exchange for a commitment to enter the service as a commissioned officer when you graduate. You generally promise to serve for at least four years post-graduation. There are also two- and three-year scholarships available, depending on how many years you have left in school. Each branch of the military has their own information and program.

2. Montgomery GI Bill

During basic training, recruits get the chance to sign up for this GI Bill plan, paying for it with $100 a month during their first year in the service. Once enrolled, however, eligible members can receive a monthly stipend while attending classes, based on their active duty status and how long they’ve served. For instance, effective October 1, 2015 through September 30, 2016, those who have completed an enlistment of three years or more and enrolled in full-time school qualify for a monthly stipend of $1,789. Rates generally go up every year.

3. 9/11 GI Bill

Any veteran with at least 90 days of active duty after September 11, 2001, with an honorable discharge, is eligible to take advantage of this benefit. The biggest benefit goes to those with at least three years of active duty service. For those with three years of active duty service and attending a public school, the 9/11 GI Bill will pay up to 100% of tuition and fee payments for an in-state student. For private or foreign school attendees, payment is up to $21,970.46 per academic year.

4. Tuition Assistance

Each branch of the military also offers its own tuition assistance program, in which active duty members can get money toward tuition and fees for qualified programs. The Air Force, Army and Marines offer up to $4,500 per fiscal year with caps on credit hour costs, and the Navy offers up to $250 per semester credit hour or $166 per quarter credit hour. The Coast Guard offers up to $3,375 per fiscal year. This may also be an option for you if you belong to one of the service’s Reserve units.

5. Student Loan Repayment

If you’ve already incurred student loans, you may be able to enlist in the military and have them paid off over time. Each branch offers its own program for this. The Army and Navy, for example, will repay up to $65,000 of a soldier’s qualifying student loans, and the Air Force will repay up to $10,000. Generally, after each year of completed active duty, your service will pay 33-1/3 percent or $1,500, whichever is greater, of your total unpaid balance.

There are other programs that may assist with school costs or loan repayment, depending on your position, active duty status and career field. You can get more information on all programs at military.com/education, or find specific information from the military branch you’re interested in.

A word of caution

Although these are all valid pathways to an education without massive student loan debt—or any debt at all in some cases—experts advise that students shouldn’t join the military for the tuition assistance alone. “There are people for whom the military is great, but for some people, the military is just not for them,” says Ryan Guina, founder of TheMilitaryWallet.com, who used the military’s Tuition Assistance program to get his degree while on active duty with the Air Force. “If you’re going to join for a specific benefit, make sure all the other aspects are in line with your values and what you’re looking for out of life. I encourage people to look at the military as a whole and not just a means to an end.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate here

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College Students and Recent Grads, Pay Down My Debt, Student Loan ReFi

Should I Drain My Emergency Fund to Pay Off Student Loans?

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When Michelle Schroeder-Gardner graduated with an MBA in finance in 2012, she had $40,000 in student loan debt. But by the middle of 2013, she was happily debt-free. “To pay it off in that time frame, I side hustled like crazy,” says Schroeder-Gardner, 26, who writes at MakingSenseofCents.com. “I was a freelance writer, mystery shopper, eBay seller, survey taker and more. I was working 100-hour weeks between my day job and my side jobs.”

In her final push to pay off her loans, Schroeder-Gardner and her husband used about $10,000 from their emergency fund—almost all of it—to pay off the balance. “It made us a little nervous, but we knew that we would still be fine due to our low budget and high income,” she says. “I didn’t want my student loans hanging over my head for years to come.”

Although it’s admirable—amazing, even—that Schroeder-Gardner eliminated $40,000 in student loan debt in less than a year, experts might disagree with her technique. Draining your emergency fund under circumstances that aren’t an emergency isn’t something they typically recommend.

When should you do this?

“Some of it has to do with life stage,” says Wes Brown, a financial planner in Knoxville, TN. “If you’re living at home in your parents’ basement, and other liabilities are at a minimum, and there’s a safety net, then I could see supporting this.”

In other words, if you’re not saddled with a variety of fixed expenses that would be at risk if you lost your job or needed to replace your roof, you’re a better candidate for wiping out your emergency fund to pay down debt.

You also may be in the clear if you have access to other kinds of liquidity, such as a home equity line of credit, or the Bank of Mom and Dad. “It could be that you have family members or friends who are willing to lend to you, or that you have good silver you could pawn or sell,” says Larry Luxenberg, a financial planner in New City, NY. “But whatever it is, you may need money in an emergency, so you need to be prepared for all sorts of contingencies.”

James Bryan, a financial planner in Edina, MN, agrees. “This isn’t a bad route in certain situations,” he says. “For example, if you’re 26, you live in an apartment, you have a pretty steady job and you don’t have a big car payment. But you have to make darn sure that you have excellent job security and you’re healthy and not at risk of any disability.”

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When shouldn’t you do this?

“If you don’t have any liquidity resources, I would say that’s a bad idea,” Luxenberg says. “A lot of things in your personal finances require patience and balancing things. Too much debt can be a bad thing, but a reasonable amount of debt for the right purposes can be a good thing.”

That’s because of all the debt you could have, student loan debt is one of the more favorable types. It’s typically lower cost than consumer debt, you get a tax break on the interest paid, and there’s often flexibility in payment plans if you fall on hard times. “The worst case scenario is where you use up your emergency fund to pay off student loan debt, and then you find yourself in a bind,” Brown says. “So you have to borrow from another line of credit to cover that, and you’re swapping a more favorable kind of debt for a less favorable kind.”

It’s also not a great plan to wipe out your emergency reserve if you’re carrying a mortgage. You could be one mortgage payment away from owning your home outright, but if you miss it because you lose your job and have no back-up cash, you could still be foreclosed on. And of course, there’s always unexpected maintenance. “A home is a massive responsibility,” Bryan says. “A roof, a new furnace, they cost a lot of money and they don’t give you a 12-month warning.”

What’s the best approach?

For most it will be keep that emergency reserve and address your debt the old-fashioned way—by paying it down paycheck by paycheck. If you have no emergency reserve, consider splitting your discretionary funds between savings and debt every time you get paid. That way you can achieve two goals at once. “You could use a simple equation like 70% toward debt and 30% toward savings,” says Nev Persaud, a financial planner in Atlanta. “You have to be wise in creating a balance.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate here

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FSA vs. HSA: Which Is Right for You?

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If you’re in the position of having both a Flexible Spending Account (FSA) and a Health Savings Account (HSA) available to you, you might be wondering which way you should go.

Most consumers don’t totally understand account-based health plans, including HSAs and FSAs, according to a survey by health care and benefit payment firm Alegeus Technologies. Case in point: Only half of FSA holders passed an FSA proficiency quiz, and just 30% of HSA holders passed an HSA proficiency quiz.

If you aren’t sure which account is the best pick — or even what they can do for you — here’s a breakdown of your options.

What’s a Health FSA?

A health Flexible Spending Account is an employer-sponsored medical savings account into which you can contribute pre-tax dollars that you can use toward qualified health care expenses. This generally includes deductibles, copayments and qualified medical expenses that your insurance doesn’t cover, such as prescription medication, contraceptives and orthodontia.

In 2016, you can contribute as much as $2,550 to an FSA.

FSA Pros:

If your employer offers an FSA — and a majority do — signing up during open enrollment (usually in the fall) is easy, and setting aside funds pre-tax lowers your taxable income, which means you pay less in taxes overall.

FSA Cons:

The money you contribute to an FSA must be used by December 31 of the contribution year, unless your employer offers either a grace period (in which case you must use all funds by March 15 of the following year) or a $500 carryover option, in which you can roll over up to $500 in unused funds to the next FSA year. Otherwise, the unused funds are forfeited to your employer.

This means you must be fairly accurate at guessing what your healthcare expenses will be in the future, which isn’t always so easy. And you can only change how much you contribute to your FSA during open enrollment, or after a life change (such as a marriage or birth of a baby) or change in employment.

FSAs are employer-specific. If you change jobs, you’ll generally lose your FSA.

What’s an HSA?

A Health Savings Account is a medical savings account into which you can deposit pre-tax money, available to consumers enrolled in an HSA-qualified high-deductible health plan. Like an FSA, the funds can be put toward out-of-pocket health care expenses.

In 2016, the contribution limits for HSAs are $3,350 for individuals and $6,750 for families.

HSA Pros:

The money you put into an HSA can stay there until you use it — no end-of-year deadline. You can save now and pay for medical costs in 20 years if you wish. To make high-deductible health plans (and accompanying HSAs) more enticing to employees, many employers sweeten the deal by contributing some amount to the HSA annually — an average of $515 per employee in 2014, according to United Benefit Advisors.

You also have the ability to invest the funds in your HSA, ostensibly giving you another way to grow your savings. You won’t be taxed on any earnings or distributions from the account.

You can change your HSA contribution amount at any point during the calendar year. Had an unexpected medical expense? Put pre-tax money into your HSA to cover it.

HSAs are not employer-specific, so you can take your HSA with you even if you change jobs.

HSA Cons:

Not everyone is eligible for an HSA. You must be enrolled in a qualified high-deductible health plan (HDHP), so if you aren’t, an HSA isn’t an option for you.

For 2016, an HDHP would be self-only health insurance with a deductible of $1,300 or more or family health insurance with a deductible of $2,600 or more. To have an HSA, your HDHP would have to be your only plan, you shouldn’t be Medicare-eligible, and you can’t be claimed as a dependent on anyone else’s taxes.

The Bottom Line

So which should you choose? That depends on your circumstances. If you’re eligible for both, an HSA has more advantages in terms of flexibility, the ability to roll it over year after year, and the chance to invest the funds.

If you’re not eligible for an HSA, and your employer offers an FSA, the choice is easy: Sign up for the FSA.

You can’t have both accounts at once unless your employer offers a limited purpose FSA that could be used to pay for out-of-pocket dental and vision expenses. Your benefits department should be able to tell you whether that’s the case.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate here