President Trump and Elon Musk’s efforts to reduce the size of the government could have a massive impact on institutions that serve federal employees, but how will government job cuts impact credit unions?
Many institutions are still trying to determine how to proceed. The uncertainty is compounded by mixed messages from different parts of the government, and more dramatic cuts are expected soon.
More than two dozen credit unions have direct ties to the federal government, serving agencies as varied as the Departments of Defense, Treasury, and the Interior; Library of Congress; the Federal Aviation Administration; the Centers for Disease Control and Prevention; and more.
Many credit unions that serve government employees are well below $10 billion in assets, and the majority are even below $1 billion. Widespread job losses among the membership and in the communities they serve could have a major adverse effect on those shops.
The federal government had slightly fewer than 2 million civilian workers as of last year, according to a December 2024 report from the Congressional Research Service; less than one quarter — 23% — of those employees live near Washington, DC. Musk’s Department of Government Efficiency aims to reduce the federal workforce by as much as 75%. Although it remains unclear whether that will be possible, even a substantially smaller reduction could have a major ripple effect in communities across the country, possibility spurring a recession, reducing the tax base, and raising unemployment. That would impact credit unions of all stripes, regardless of whether they focus on serving government employees.
“From a macro standpoint, whether it’s GDP or inflation or unemployment or interest rate movements, all those factors will clearly have an impact on our business,” says the CEO of a mid-size government credit union located near Washington who asked to remain anonymous. “But in this instance, there are several additional micro economic impacts to consider. That could be housing prices, unemployment, early retirements, or other issues that will significantly impact my teammates’ personal lives, and that of the credit union and our members. Right now, we’re just a few weeks into this and people are still trying to figure out what all this means for them, their friends, their family, their coworkers, and their businesses.”
Concentration Risk Concerns
For some government credit unions, the cuts emphasize the importance of recognizing concentration risk and diversifying fields of membership.
Approximately 70% of the roughly 8,400 members at Labor Credit Union ($133.0M, Washington, DC) are active federal employees serving either the Department of Labor, the Bureau of Labor Statistics, or the National Labor Relations Board. CEO Thomas Domingue says only pockets of the membership have reached out with questions about work stoppages or retirement-buyout offers, but he expects those numbers to rise once the Senate confirms a new Secretary of Labor.
“There’s a lot of uncertainty about whether severances and layoffs will begin once a Secretary of Labor is in place,” he says. “Right now, it’s a waiting period for a lot of our members.”
Until the situation is clearer, Domingue’s team is focusing on messages of reassurance and letting members know about various resources available, including loan deferments, fee waivers, and partnerships with local groups that provide employment assistance for those who lose their jobs or elect to move into the private sector.
Outside the nation’s capital, CDC Federal Credit Union ($465.9M, Atlanta, GA) serves federal employees and contractors working for the Centers for Disease Control and Prevention, as well as their families. The credit union has almost 22,000 members, and CEO Australia Hoover says approximately 70% are affiliated with the agency.
“While we’ve worked to diversify our membership through an underserved charter expansion, a significant portion remain tied to the CDC,” he says.
Similarly, more than half the membership at State Department Federal Credit Union ($2.9B, Alexandria, VA) is tied to the government, including the departments of state and defense, as well as the U.S. Agency for International Development. Cuts at USAID have already resulted in layoffs of roughly half the staff at the World Council of Credit Unions.
Some State Department members have approached the credit union with concerns about job losses. However, those who have reached out have not been laid off or furloughed as of now, says CEO Jim Hayes.
‘Waiting For The Other Shoe To Drop’
Approximately 30% of the more than 45,000 members at National Institutes of Health Federal Credit Union ($791.8M, Rockville, MD) are directly connected to the NIH. Only a handful have reached out with concerns about firings, layoffs, or furloughs, but CEO Rick Wieczorek expects an increase within the next month or so as the impact of cuts becomes clearer. Proposed drastic reductions in medical research funding could impact jobs at the agency; however, some of those cuts have been blocked in court, creating further uncertainty about what happens next.
Although there hasn’t been a groundswell of outreach from members, Wieczorek says there’s a sense of “waiting for the other shoe to drop” as conflicting messages come from the White House, DOGE, agencies, and the courts.
The credit union hasn’t proactively reached out yet to members, opting instead to address concerns as they arise. Wieczorek says leadership is keeping in touch with contacts at the NIH and is compiling a list of ways it can help members, including debt-management counseling, assistance with filing for unemployment, possible debt restructuring, and more.
“You can’t give a loan to someone who doesn’t have a job,” the CEO says. “But they might not be fully aware of all the resources we have available for them.”
Some federal employees might retire because of these cuts, which could create opportunities to help with wealth-management and retirement solutions, adds Wieczorek.
Further Afield
Beyond The Beltway
Aside from credit unions serving federal employees, institutions unrelated to the government should also brace for change. Colleges and universities could be hit particularly hard. Reduced or cut research funding for academic institutions already has led to hiring freezes. Reductions in DEI-related grants have also been announced, and layoffs are expected to follow as some universities terminate diversity programs. Some specialized schools, including universities for Native Americans, have already reduced their staffing as a result of the cuts.
Although the bulk of the credit unions serving government workers are headquartered in and around Washington, DC, approximately 80% of the roughly 2 million federal employees work outside the metro area, according to a 2023 report.
Approximately 13,000 people work at the CDC, 700 of which have been laid off. That’s a reduction from a figure that initially stretched as high as 1,700 before being scaled back.
“Our members are understandably concerned,” Hoover says. “We’ve received numerous calls from members inquiring about options available to them given the recent position eliminations and workforce reduction. They have questions about loan terms, skip-a-payment programs, and other assistance we can offer if they are impacted.”
Some CDC FCU board members who work within the agency have been able to provide first-hand insights, but Hoover notes the fluidity of the situation has made things more difficult.
“While targeted outreach to impacted members is ideal, the rapid and unpredictable nature of these changes makes that challenging,” he says.
For now, the credit union’s approach is to respond to individual inquiries from members. If broader communication becomes necessary, the credit union will likely use messaging similar what it uses during government shutdowns. That messaging focuses on the credit union’s commitment to helping members and options like paycheck continuation assistance, skip-a-pay programs, financial counseling, and more.
Close Connections
Even further from Washington, True Sky Federal Credit Union ($829.5M, Oklahoma City, OK) is relying on close ties with its original sponsor group for a better sense of what to expect. Approximately 36% of True Sky’s membership is still directly tied to the Federal Aviation Administration.
“Because of the relationships our board and senior team have with the FAA, we rely on that point of contact far more than what’s in the news,” says CEO Sean Cahill. “We’d rather get the official word than speculation.”
True Sky has largely taken a wait-and-see approach for now, in part because even its contacts at the FAA aren’t sure what to expect. Along with the FAA and contract workers, True Sky also serves some employees within the Department of Homeland Security, Tinker Air Force Base, and more.
It has yet to deploy programs rolled out during government shutdowns — such as a 0% assistance loan — in part because the full effect on True Sky’s membership remains unclear. Cahill says he expects more clarity by early March. Complicating the matter further, he says, is that it’s unclear how many remote employees who have been ordered back to the office will wind up losing their jobs.
“The sand keeps shifting,” he says. “We want to be careful about causing more worry and uncertainty when some of these things haven’t officially occurred.”
If remote employees return to DC, they’ll need to foot the bill to relocate. Ditto for those employees who might need to move after losing a job. Credit unions are no strangers to offering lending support for military and corporate moves. Read more in “Help On The Homefront.”
Adjusting The Balance Sheet And Beyond
Unfortunately, the balance sheet can’t wait, and many credit unions are already making adjustments.
Preparations at Labor Credit Union include stress testing for increased delinquencies and higher losses than in recent years. The credit union already has increased its allowance for loan losses and has scaled back ordinary loan promotions to ensure adequate liquidity in case members need emergency loans.
“When you look at our historical delinquencies, we’re well below peers,” Domingue says. “But that’s all going to shift for us.”
True Sky is currently focused on messaging but has already made some adjustments to operations based on economic conditions.
“The economy is still struggling, inflation is still impacting members in a big way, and we’re still seeing the largest credit losses we’ve seen in some time because of that,” Cahill says. “Any loss of employment is going to accelerate that.”
Somewhat similarly, NIH FCU is weighing the possibility that workforce reductions or other changes could impact its access to NIH campuses, which would inhibit its ability to serve members.
“That’s part of the scenario,” Wieczorek says. “We could lose the branch space all together or be charged a market rate or everything is downsized.”
Parallels And Lessons Learned
The government has shut down three times since 2013, including the longest instance on record. Many CEOs say those events have served as a dress rehearsal for what could be coming.
State Department FCU’s Hayes struck an optimistic tone.
“The real situation is rarely as bad as the anticipation,” he says. “Being prepared to respond with consistent messaging is key in keeping those affected at ease.”
For Labor’s Domingue, some of the biggest lessons came not from previous shutdowns but the early days of the COVID-19 pandemic.
“That was the closest parallel to what we’re feeling now,” he says. “We know something’s going to happen, but we don’t know to what magnitude or how long. The lessons are to be patient, don’t overreact to the news of the day, and try not to deviate from your long-term objectives — just be fluid in the day-to-day short term.”
Consumers across the country are unnerved by recent developments in Washington — but that’s when credit unions are at their best. What is your shop doing to prepare? How are you reassuring members and helping them manage their financial wellbeing? Drop us a line, and we might feature your story on CreditUnions.com.