Grand Canyon University Denied Nonprofit Status By U.S. Department Of Education

By Steve Goldstein
Published: Friday, November 8, 2019 - 1:20pm
Updated: Wednesday, November 13, 2019 - 10:34am

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Grand Canyon University
Casey Kuhn/KJZZ
Grand Canyon University in Phoenix.

STEVE GOLDSTEIN: Phoenix based Grand Canyon University was handed a surprise this week when the U.S. Department of Education decided not to recognize the for-profit GCU as nonprofit. Expectations were that with the Trump administration's focus on deregulation, GCU wouldn't have any difficulty in getting the status change approved. With me to talk about this development is Paul Fain, news editor for Inside Higher Ed. Paul, just how significant is this for GCU and the broader higher education landscape?

PAUL FAIN: It's a big decision. It's a big surprise, and it has reverberations well beyond Grand Canyon, which on its own is one of the biggest universities in the country. So anything that matters to Grand Canyon matters to higher education more broadly. But just the question of what is a nonprofit and what is a for-profit in higher education is a tough one, and it's getting harder. The boundaries are blurrier, and it's very politicized. So this is very big news.

GOLDSTEIN: Are there a couple of things that you're seeing, that you think, "Well all right, these are questions they need to answer and maybe these can be answered," and a couple that might be a little bit harder to answer, I mean, for any for-profit versus nonprofit?

FAIN: It's very hard to know what a nonprofit and what a for-profit is. The lines blur a bunch. You've got large nonprofit colleges that have for-profit subsidiaries, including Arizona State, frankly. That's a public university that has for-profit subsidiaries. Grand Canyon — very different structure — a publicly traded company with a separate, spun-off nonprofit university. Purdue University, a big public, buying Kaplan University, which is a for-profit. So the lines are getting harder to see. And federal and state regulators and accreditors are struggling to set guidelines on what works.

GOLDSTEIN: There was a comment by Brian Mueller of Grand Canyon talking about that when he had an earnings call, he had only found out an hour or so earlier, I think is what he said, when it came to the Department of Education situation. Do you think this was as surprising to GCU as it was to the other experts you talked to?

FAIN: Yes, I do think this was a big surprise to Grand Canyon. The Trump administration has been very deregulation oriented in higher education. I think a bunch of folks felt like for the big for-profit colleges like Grand Canyon, it saw advantages in becoming a nonprofit — from a PR standpoint, but also you can do different things. You can take donations. You're technically a public charity. You can do research. You can participate in the NCAA in different ways, which, as you know, Grand Canyon is a Division 1 athletics program now. So there were a lot of advantages to doing this. And I think folks thought that the Trump administration would be favorable to making the change. They've been favorable on similar models. They've approved the Purdue and Kaplan arrangement, Purdue being a public university, Kaplan being a for-profit. So yeah, I think an hour before I call finding out that this administration, which tends to be favorable on deregulation, said, "No, actually you're a for-profit" — it must have been pretty surprising.

GOLDSTEIN: And you mentioned PR. Let me ask about perception. To what extent does this affect the perception of Grand Canyon? Do you think it will hurt them in any way that those who were not directly involved in for-profit education or otherwise will notice? Will the general public be affected by this? Would students be affected? What do you think?

FAIN: I don't think Grand Canyon will have significant problems out of this. I think mostly this is going to be a lot of work for lawyers for them in Washington. You know, it's a very strong institution in a really enviable position. They have 21,000 or so students on campus. It's a thriving campus, as you know. They've put $1 billion into it or more in the last decade. And then another 80,000 students online. So they're in good shape. They have actually good, good results too. Their student loan default rate is half the national average, just 5% of students default. So they have some real strong numbers to back up what they do. And frankly, I think most students probably don't really know the tax status issue. I know when I was an undergrad, I wouldn't have been paying much attention to that. But I do think it's going to be a messy situation to resolve legally. It's not even clear right now what this means, that you're a for profit college for federal aid purposes. How does that play out for them after waiting 16 months since they got approval from the state and from their accreditor to move forward as a nonprofit? So really confusing, complex situation.

GOLDSTEIN: Going forward, is this something that other for profits are going to have to try to almost figure out on the fly because things are in flux to some extent? Does this put other for-profits or other potential for-profits on guard because they don't know what their expectations should be?

FAIN: Absolutely. When Grand Canyon started down this path five or so years ago, Brian Mueller said that there was a stigma attached to being a for-profit university, and that's become more true since then. The sector is really collapsing. Lost half of its enrollment. Big nonprofit universities are doing really well online now. There's more competition, and the term "for-profit" is kind of a scarlet letter in some circles. I think people are avoiding those institutions more. And many other for-profit colleges have sought to become nonprofits. Mostly smaller ones have succeeded in doing so. There are some big ones that have a slightly different model pursuing a similar conversion. So this was a popular move, and Grand Canyon did do it in some different ways. You know, they have a publicly traded holding company that oversees and does administrative services for their nonprofit university. But both of those entities were overseen by the CEO, and some people criticize that structure as having some conflict. So we don't know yet why the department rejected their bid and took 16 months to do it. But I think for a lot of other institutions that were looking to make a conversion, this is a big red flag. And it's actually even more than just for for-profit colleges. It raises questions about the outsourcing of academic operations to companies, which is increasingly happening. Many public and private nonprofit colleges outsource some of their academic operations online to online program management companies. And this raises some questions about whether the regulations might make that harder as well.

GOLDSTEIN: Paul Fein is news editor for Inside Higher Ed. We've been talking about Grand Canyon University. Paul, thanks for the time this morning.

FAIN: Thank you. Appreciate it.

GOLDSTEIN: And in a statement, KJZZ Grand Canyon says it is reviewing the Department of Education's decision.

Grand Canyon University's full statement, emailed to KJZZ:

"GCU is reviewing the Department of Education’s decision and, at this time, has no comment beyond what Grand Canyon Education shared in its earnings call.

"Please note that, since the Department of Education has decided to treat GCU as a for-profit entity for Title IV funding purposes — and is therefore subject to regulations that apply only to for-profit institutions — GCU fully exceeds all of those regulatory measures. None of GCU’s programs failed the gainful employment regulations. GCU sits at 73% for 90/10 purposes. And our cohort loan default rate is 5.6%, well below the national average of 10.1%.

"The full transcript of the GCE earnings call can be found in several places online. Here’s one."

On Nov. 12, GCU released another statement in response to the Department of Education.

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