Grand Canyon sues U.S. Education Department for rejecting its conversion to nonprofit status

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Grand Canyon University, whose bid to be considered a nonprofit rather than for-profit institution for federal financial aid purposes was surprisingly rejected by the U.S. Education Department in 2019, announced Thursday that it would “reluctantly” sue the federal agency over that decision.

“The Department of Education’s refusal to recognize GCU as a nonprofit institution … is clearly arbitrary and capricious,” the university said in its statement. “GCU’s nonprofit status is recognized by the IRS, the State of Arizona, the Higher Learning Commission and every other regulatory body that governs the University … The university cannot sit idly by as the Department of Education refuses to recognize the positive impact GCU’s financial model has had on the GCU community.”

Grand Canyon has over the last decade grown to become one of the country’s largest postsecondary institutions, with about 110,000 students (roughly 20,000 on campus and 90,000 online), and it is among several onetime for-profit institutions that — amid significant regulatory and enrollment headwinds — have sought to operate as nonprofit colleges instead.

The Education Department’s November 2019 decision to reject the university’s proposed conversion stunned many higher education observers, given the Trump administration’s perceived soft spot for for-profit colleges and its relative dislike of restrictive regulations. The Education Department published an 18-page letter laying out its reasoning for rejecting Grand Canyon’s application, focusing heavily on the relationship of the university to Grand Canyon Education, which was its publicly traded owner and now provides various administrative and other services to the university.

The department also questioned whether the transaction that separated the university from the parent company had sufficiently benefited students, employees and alumni.

Grand Canyon has since then made numerous changes to try to address the Education Department’s concerns, the university said in its statement Thursday. The university has altered its services agreement with Grand Canyon Education and paid two national firms recommended by the Education Department to conduct studies that showed the purchase price and the services agreement to be favorable to the university.

The statement also asserts that the change in ownership has benefited the university’s constituents.

“By any financial measure, including the opinions of two independent financial experts, the acquisition of the University and its financial performance over the last two years has been tremendously beneficial to the University and has enabled it to better serve students, faculty, staff, alumni and other members of the Phoenix community consistent with the University’s mission and Christian faith,” it said.

Those changes have left the department unmoved, which Grand Canyon officials suggest is forcing their hand to bring litigation they’ve long promised. While the university’s statement focuses mostly on factual reasons why Grand Canyon believes the department is wrong, it also makes clear that its beef with the federal agency has gotten personal.

The statement says that the university recently “received a communication from the Department of Education indicating that [its] accomplishments are ‘not remarkable for an institution of higher education.'” And it adds, “While faculty and administrative leaders from many universities have visited GCU to learn more about the university’s approach to higher education, Department of Education officials, despite repeated invitations, have never set foot on GCU’s campus to engage with the University’s students, faculty or staff.”

An Education Department spokesman said the agency does not usually comment on pending litigation.

An analyst who tracks Grand Canyon’s stock, Jeffrey M. Silber of BMO Capital Markets, called the litigation promise “not totally unexpected,” but he said it “unfortunately adds additional headline risk” likely to keep Grand Canyon in the news in unfavorable ways.



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