Expert: Cynthia Bedell - 12/14/2007

Question
Hello Colonel, I was wondering, will the Army pay for my student loans the second I graduate and head off to basic training and OCS?

Answer
Dear Frank --

Whether the Army pays off your loans and the payment schedule depends on your enlistment contract.

With the right credentials, you are eligible for an enlistment bonus, which in your case is loan repayment.  You commit to serving a certain number of years and the Army agrees to pay some bonus.  The first installment of that bonus is when you graduate from initial entry training.  For you that would be at graduation of OCS.  You would get additional installments on the anniversary of that graduation day, as long as you continue to serve honorably.  Payments end when you receive your maximum total bonus as outlined in your enlistment contract.  Please be sure your contract reads exactly as you were promised before you sign it.  I have heard of a few too many "bait and switch" contracts where the recruiter promises the enlistee one thing, and shows him a draft contract with that clause in it, but the clause is missing from the final contract the enlistee is asked to sign at the MEPS station.  If that happens to you, walk out of the MEPS station.  Don't sign a contract that doesn't grant you what you think you negotiated.

Your bonus is taxable, so be sure to pay your quarterly estimated taxes, so you do not have to pay a penalty at the end of the year.  

Also, when you serve in the military, you can defer most college loans for up to 4 years.  That means you do not have to pay monthly, and you do not accrue interest.  Even if your bonus is loan repayment, if you defer your loans you will limit the amount of interest you will have to pay, and reduce the total cost of the loans.

If you have a grace period after graduation before you have to start making payments, wait until the grace period is over to apply for your military loan deferral.  That way you maximize the period of time before you must begin making monthly payments.

Let me know if there are other questions.  Have a happy holiday season!