By: David Silverberg
This is the actual annual cost of enrolling five children ages three to 14 in a local community based private school for the 2010-2011 academic year. In the New York/ New Jersey area, many Orthodox Jewish schools are already charging over $10,000 for preschool, while high school tuition for a ninth grader has long ago broken the $20,000 mark. And because yeshiva tuition is generally fully taxable (unlike college tuition), the New York based family of five described above that might otherwise have been able to live comfortably on a $150,000 pretax income, would have to earn almost double that – roughly an additional $149,090in gross income – just to cover the tuition bill expense for their five young children. With these figures forecasted only to rise in coming years, and with high income jobs and profitable businesses becoming increasingly difficult to come by, the “tuition crisis” has emerged as the most pressing yet vexing problem confronting the Orthodox Jewish community in the United States.
A wide range of solutions have been proposed to help families buckling under the heavy burden of yeshiva tuition bills, including lobbying for more government participation through tax deductions, credits or direct subsidies; promoting greater administrative efficiency to lower school budgets; and mandating a “school tax” on all community families. Each of these areas has, at best, seen only modest success over the years as tuition bills continue to rise faster than incomes. It is becoming increasingly clear that new ideas and strategies will be necessary to sustain yeshiva education as we know it.
Enter Judah Libin, an Orthodox Jewish technologist in Long Island, who has launched a new, well-timed initiative aimed at generating revenue on behalf of Orthodox Jewish day schools, enabling them to lower tuition costs – without overburdening philanthropists.
The innovative concept lies in the 150-year-old notion of a credit union, which has recently enjoyed growing popularity as a sound alternative to the turmoil-ridden banks.
What is a Credit Union?
To understand what a credit union is and how it works, an analogy to the democratic system of governance might be useful. In a dictatorship, laws are legislated solely for the benefit of the ruling entity, and the populace has no voice in establishing, approving or reversing legislation. A democracy, by contrast, is run “by the people for the people,” as it is they who elect the leaders who determine public policy, and then decide whether those leaders should continue leading or be ousted.
The credit union concept turns a bank into a “democracy” by transforming the customer into a member. Banks are owned by shareholders, who appoint a Board of Directors entrusted with the job of making them – the shareholders – the most money that they can. The terms and conditions regarding fees for financial services, interest paid on deposits and interest charged for loans, are set by the bank’s leadership on the basis of their estimation of how the bank can maximize profits. Of course, these terms and conditions must be able to compete with those offered by other financial institutions in order to attract customers. But at the end of the day, banks are run by representatives of the shareholders and for the exclusive benefit of the shareholders, and the customer’s only say in the matter is which bank to choose.
In the credit union model, the institution is run by its customers. Everyone who deposits money in the bank – usually only a $1 minimum is required – becomes a union member. All members – regardless of the value of their investments in the union – are given an equal vote in electing an unpaid, volunteer directorate, which determines the union’s policies. But more importantly, the customer-member model means that credit unions are not-for-profit entities. The union is formed not to make money for the person or persons in charge, but for all the customer-members. This is done by funneling the profits back into the union, usually in the form of cheaper loans, higher interest on savings and lower service fees. And, in the U.S. and many other countries, credit unions are officially recognized as not-for-profit organizations, which means that they do not pay taxes on profits. Their tax-exempt status gives them additional leverage in offering attractive terms to their customer-members.
A credit union serves a limited, specified population, usually defined on the basis of faith, industry, profession, workplace, geographical location, or organizational affiliation. Because the union is much smaller than a bank and is comprised of people who share a common affiliation, service is generally less bureaucratic, more reliable, and faster. Loans are handled by local personnel, and do not have to wait for approval by a committee in a different state. With fewer staff and fewer customers, the whole experience is less formal, more personable, and more personalized.
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A Safe Haven From the Financial Tempest?
Credit unions began in mid 19th-century Germany, and quickly spread to many other European countries. The model was especially popular in rural, agricultural communities, where small cash flows and limited human resources made conventional banking impractical. Across the Atlantic, North America’s first credit union was a parish-based group which opened in Quebec in 1901. Quebecois immigrants to the U.S. opened the first American credit bank in 1908, St. Mary’s Bank Credit Union, in Manchester, New Hampshire.
In 1934, as part of his efforts to steer the American economy out of the throes of the Great Depression, President Franklin Roosevelt signed into law the Federal Credit Union Act, which created a federal system to charter and oversee credit unions. Recognizing the value of credit unions for individuals and business in need of cash, the act gave the credit union concept federal backing by establishing the Bureau of Federal Credit Unions, the precursor of what is now called the National Credit Union Administration. This government agency supervises the nation’s credit unions and insures their deposits, just as the FDIC insures bank deposits.
By 2008, credit union membership across the United States had reached nearly 90 million, and the total value of their loans exceeded $575 billion.
Interest in credit unions has mushroomed in recent years, due mainly to the collapse of the finance market in the autumn of 2008. Although credit unions certainly took a hit, their relative stability during the tempest that tore down hundreds of banks and investment firms led to their sudden emergence as an attractive, safe alternative to conventional banking.
In September, 2008, during the height of the dramatic market collapse, Neil Weinberg, senior editor of Forbes Magazine, gave an interview on CNN in which he described credit unions as a “safe harbor” from the raging economic turmoil. Weinberg explained that credit unions “tend to be conservatively managed and federally insured, which in this day and age is what you want.” Whereas banks are more likely to be risky and adventurous in their push for higher profits, credit union members are simply out to help each other, thus keeping high-risk loans to a minimum. In addition, Weinberg noted, credit unions are under tighter regulation, making them safer places to keep your money. “Typically, credit unions have federal charters and federal inspectors, with strict, tougher rules. Because they began as agricultural cooperatives, they are run conservatively. You want to go for those credit unions.”
In October, 2008, the Florida-based Pine Hills News wrote that credit unions “may be among the safest financial institutions in the nation,” noting that they “are gaining recognition…for not only having avoided the problems that created today’s financial mess, but for being a huge part of the solution.” And several months later, in March, 2009, an article in The Wall Street Journal confirmed that credit unions had weathered the financial storm far more successfully than ordinary banks: “Credit unions have largely avoided the banking world’s turmoil by sticking to their plain-vanilla business model: taking in deposits from owner-members and lending the money back out to them. And they’re writing more loan checks than they have in years — still mainly for home and auto loans, but for more business loans, too.”
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Tuition Instead of Toasters
Declining public faith in banks, the increasing awareness of the advantages of credit unions, and the ballooning yeshiva tuition crisis – mix all this together in a bowl, add some volunteerism and a joint sense of mission among American Orthodox Jews, and you get the Yeshiva Credit Union.
The recipe was devised by Judah Libin, who has plenty of experience in the two worlds he is now trying to bring together: yeshiva tuition, and credit unions. As a parent of a 7thgrader and two 3rdgraders in a local Orthodox day school, he has been experiencing firsthand the heavy financial burden of yeshiva tuition. His extensive knowledge of credit unions was amassed during his years as the Chief Technology Officer of NewTech Business Services, which designs and maintains technology systems for financial institutions – 75 percent of which are credit unions. NewTech provides a full range of technological support for all financial operations, including credit card processing, loans, taxes and insurance. Last year, Libin opened his own Information Technology business.
Libin spent much of his time at Newtek Business Services (NASDQ: NEWT) developing and analyzing IT systems for credit unions, including Navy Federal Credit Union, one of the largest credit unions in the country. He learned about the in’s and out’s of these institutions, and noted how they are regulated, transparent, government-insured, self-sustaining cooperatives that help a group of commonly affiliated people pursue their shared interest. It was at a convention two years ago when Libin suddenly realized that he himself belonged to a group of commonly affiliated people with a shared interest, that could benefit from a credit union.
“It occurred to me,” Libin recalls, “that I represented a group of people with a special need – tuition. This is a need that is killing us, and will only continue doing so in the coming years.” Libin sat down with a representative from CUNA (the Credit Union National Association), and together they sketched a model of a Yeshiva Credit Union (YCU).
“The CUNA representative told me that this is precisely who credit unions are made for – special communities with a unique need. The union earns profits that are then put back into the community to serve its needs.”
Normally, the union’s surplus is used to lower interest rates on loans, raise rates on savings, and lower service fees. In some unions, however, the profits are used for the group’s community – and this is precisely the model which Libin envisions for the YCU. So instead of the toasters once famously offered by banks as a perk to account holders, the Yeshiva Credit Union’s profits will be transferred to partnering yeshiva day schools for the purpose of defraying the cost of tuition. This means that community members will enjoy competitive interest and service rates at a secure, transparent financial institution run under the auspices of like-minded Orthodox Jews, and at the same time benefit from lower tuition costs.
In presenting this plan to the community, Libin brings to the table more than just a vision. Having spent many years designing computer systems for credit unions, he says that all the technology is already in place and ready for the taking.
“There is plenty of technology out there ready for us to use. There are also many existing credit unions that will let us piggyback on their systems. The idea is to harness all the available technology to minimize the need for manpower and thus cut costs.” That would allow the YCU to keep its rates low enough to compete with banks and other credit unions, without having to funnel earnings back into the union. Libin describes his vision of “fully automated and transparent” operations, which would make the system easy to use and easy to trust. “We will leverage technology to maximize efficiency, and there will be a lay committee comprised of community members to oversee all operations.”
Libin believes that the time has come to present the YCU concept to the Orthodox public and to begin attracting members. With credit unions gaining more popularity and people growing increasingly wary of banks, this might be the perfect time to make the match between credit unions and the tuition crisis.
An Appeal to the Sephardic Community
Libin has worked, successfully, at arranging a professional, devoted staff of volunteers to undertake the administrative, advisory and technological responsibilities entailed in this ambitious project. All that’s left is to sell the idea to the Orthodox Jewish community and attract members.
“I spoke to a number of schools about the idea, but they weren’t ready to accept it,” Libin says. “It sounded too complicated, and they didn’t think it would work.”
It was when Libin spoke with several members of the Sephardic community that the idea started gaining momentum. Last winter, he attended a meeting with representatives of the Sephardic community to discuss the growing tuition problem, and the consensus among the attendees was that some kind of unifying, profitable enterprise could hold the key to the elusive solution. Libin unveiled his Yeshiva Credit Union plan, and the people listened. One Sephardic community member at the meeting, Joey Sasson, Senior Vice President at leading insurance broker Garber Atlas Fries & Associates, volunteered to work hand-in-hand with Libin in advancing the initiative.
“Joey understood that this could succeed,” Libin says. His sense is that members of the Sephardic community in particular understand banking, realize how profitable it could be, and the extent to which credit union profits could lower tuition costs in the Jewish community.”
As the tuition crisis continues to tighten its grip, the need for a solution becomes increasingly urgent. “There is lots of unemployment, many people are in debt, the economy is bad, and everyone somehow has to come up with tens of thousands of dollars each year for tuition. Something has to be done, and we all have to come together to find a solution. The concept of a credit union is that people with a shared need come together to make money to fill that need – and this is precisely what we need to do.”
This concept is expressed in Judaism by the timeless precept of “kol Yisrael arevim zeh lazeh – all Jews are responsible for one another.” Jews from across the spectrum will have the opportunity to come together to solve one of the vexing problems of our time.
Libin envisions the Yeshiva Credit Union as a win-win situation. Members get a full range of financial services on terms that are competitive with those offered by the leading banks while Jewish day schools receive a reliable source of funding. Most of all, of course, Jewish parents will be able to continue providing their children with the education they need to carry on our Torah tradition and pass it on to the next generation – without the extreme pressure of overwhelming tuition bills.
The Yeshiva Credit Union initiative is currently forming an exploratory committee and is seeking board members of community schools and successful businessmen interested in the initiative. For more information about this opportunity, contact Judah Libin firstname.lastname@example.org or Joey Sasson email@example.com.
Based on 2009 Federal income tax rate of 28% for income over $82,250 but less than $171,550 and 33% for income over $171,550 but less than $372,950; added to the 2009 New York State income tax rate of 6.85% for income over $40,000 but less than $300,000 and the 2009 New York City rate of 3.648% for income over $90,000.