$100K and a dream: College senior plots student-run credit union
Starting a credit union is no easy task but the challenge is even greater if the organizers are trying to do so while still in college.
After almost four years spent raising nearly $100,000, a group of students at George Washington University in Washington, D.C., hope to open an entirely student-run credit union as soon as next year. The planned institution would focus on GW students with hopes of expanding the field of membership to alumni eventually. Faculty and staff there are already eligible to join National Institutes of Health Federal Credit Union.
Despite their successes so far, the credit union’s organizers have some significant hurdles ahead of them, experts said.
“Good for them for giving it a shot but it’s an uphill battle,” said Richard Garabedian, an attorney at Hunton Andrews Kurth, which represents banks and credit unions. “You have to demonstrate that you are viable because there is federal [deposit] insurance involved. That’s a tough one.”
Sahil Pankhaniya, who is a senior at GWU and would serve as CEO of the proposed institution, started the push to open a de novo as a freshman. Pankhaniya, a finance major who plans to pursue a career in banking when he graduates in the spring, became interested in the concept after seeing it at Georgetown University.
He believes a credit union catering to the George Washington University campus would help students better understand personal finance.
“I thought [starting a credit union] would be a perfect combination of learning about finance and helping students to be more successful,” he added. “I saw that financial literacy and independence was a problem. Students are not prepared for that in college. You never have a professor teach you what a credit score is at a practical level.”
At first, the proposed institution would provide a limited number of products, including a share draft account and a share certificate, with interest rates benchmarked against what’s offered from accounts with Marcus, the consumer bank at Goldman Sachs.
On the lending side, the credit union would offer members a credit builder loan, which would be a secured loan with a financial education component meant to help students improve their credit. There would also be loans to purchase textbooks and to cover expenses related to taking an internship.
So far the group has secured funding through donations from students, alumni, advisory board members and other credit unions. The George Washington University School of Business also contributed a $10,000 gift. Pankhaniya believes the nearly $100,000 he and other organizers have raised will be enough to get the project off the ground since the institution will be virtual and the university has already donated office space.
All of the students working there would be volunteers, helping keep overhead costs relatively low.
It is certainly possible that Pankhaniya and the other students working on the de novo will be successful, experts said. Chip Filson, co-founder of Callahan & Associates and an advisory board member to the proposed startup, noted that the National Credit Union Administration at one time was encouraging college students to start credit unions.
In 1983, student-run credit unions opened at Georgetown University, Skidmore College and the University of Chicago. The regulator’s annual report from that year included a subhead that said “student credit unions welcomed” and featured a picture of the first annual meeting for Georgetown University Student FCU.
Two of those institutions — Skidmore Students Federal Credit Union and Georgetown University Alumni and Student FCU — are still operating today. University Student FCU in Chicago is now listed as inactive, according to NCUA.
Filson noted that the students behind the GW University credit union hope to create documents to share with other college students that could help spur more new student-run credit unions by giving them a road map of sorts to follow.
“If the NCUA embraces it as it did in [the 1980s], we would bring a whole new generation of people starting and running credit unions into the movement,” he added.
But Pankhaniya and the GWU Credit Union Initiative face a number of challenges. Despite NCUA vowing to streamline the de novo process, the number of new credit unions has dwindled in recent years. There have been just 15 new charters since 2014 with only two opening in 2019 and one so far this year, according to data from NCUA.
Before granting a new charter, NCUA considers issues such as support from a field of membership, capital and ability raise money, business plans and potential risks to the National Credit Union Share Insurance Fund, an agency spokesman said.
Capital is one of the biggest obstacles in opening a new credit union, Garabedian said. Unlike banks, those who give money to start a credit union will not get a return. Instead, organizers of proposed credit unions must find individuals and groups who are interested in donating funds because of “more altruistic reasons,” he added.
Additionally, a student-run credit union may draw more scrutiny in terms of the experience of its board and management team, said John McKechnie, a senior partner at the consulting firm Total Spectrum.
All managers would be undergraduate students, and there are hopes that the entire advisory board will be all students one day as well. Pankhaniya suggested the frequent turnover among staff — as students graduate and new students get involved — could actually be an asset since it will mean constantly bringing new ideas and perspectives to the table.
A spokesman for NCUA said the agency reviews all charter applications according to guidelines under the Federal Credit Union Act and manual, “irrespective of a subscriber’s status such as a student or as an experienced credit union executive.” But whether the proposed institution’s “prospective officials” and “employees are of good character and fitness” is also considered during the process, the spokesman said.
“I do think in the case of a student-run credit union, the agency will want to see continuity,” McKechnie added. “By definition the leadership would rotate. I don’t think that’s necessarily an obstacle but these are considerations.”
Reed Hasson, chief communications officer for Georgetown University Alumni and Student FCU and a student at the school, said that ensuring a steady workforce is a challenge for the $16 million-asset institution. The credit union averages more than 100 employees every year.
But he also emphasized it was worth overcoming these obstacles to keep the institution’s door open.
“It’s definitely difficult and will be a lot of work, but at the end of the day, it’s super beneficial,” Hasson said of having a student-run institution on campus. “I’ve met some of my close friends at the credit union and learned valuable skills. I’ve learned about everything from how the federal banking system works to how to manage people where we are friends but they are my subordinates. I can take those skills with me to any future job.”