October 5, 2023

Grand Canyon U Says Feds Are Targeting It “Unjustly”

Grand Canyon U Says Feds Are Targeting It "Unjustly"

Giant career college Grand Canyon University, which boasts a student enrollment of 118,000 and receives more taxpayer-funded federal student aid than any other for-profit college in the country, has issued a lengthy press release charging that government officials “are coordinating efforts to unjustly target” the school. GCU asserts that officials at the U.S. Department of Education, the Federal Trade Commission, and the Arizona Veterans Services State Approving Agency are unfairly probing the school “in what appears to be retaliation for the university filing an ongoing lawsuit against [the Department of Education] regarding its nonprofit status.” Grand Canyon has sued over the Department’s 2019 decision refusing to treat the school as a non-profit for purposes of federal student aid. 

In its press release, GCU discloses, among other things, that the Department of Education sent GCU a notice that it had found the school had made “substantial misrepresentations” regarding the cost to complete a doctoral degree. GCU also says that the Department “has stated its intent to levy a fine” against the school.  GCU’s press release, distributed by the school on Thursday, contends in response that the school “provides more transparency regarding the estimated cost of the programs than is legally required…” 

GCU also says that has been informed by Grand Canyon Education (GCE), the connected for-profit company that provides a range of educational and operational service to GCU, “that they believe the FTC is seemingly focused on phone calls GCE makes on our behalf to prospective students.” In response, GCU said “GCE does not make cold calls to prospective students, only reaching out to those who have inquired about GCU’s programs or otherwise expressed interest in attending GCU.” 

Finally, Grand Canyon’s statement complains of an investigation by the Arizona agency that oversees higher education funding for veterans in that state and says it is the school’s “belief” that that agency “was unduly influenced by the U.S. Department of Veterans Affairs, in conjunction with other federal agencies, to conduct and carry out a risk-based audit in this manner rather than the audits it has performed in the past in which the university has received stellar reviews.” 

Grand Canyon charges that the Department of Education has engaged in “intentionally mis-classifying GCU as a for-profit institution” in order for the Department and other federal agencies to engage in “a coordinated effort” to target the school along with other “for-profit institutions that they frequently decry as bad actors due to the disproportionate number of Americans who attended those schools and then defaulted on federal student loans.”

In the past decade or so, a number of large for-profit schools have converted to non-profit status, many motivated by the desire to escape the additional regulations that government agencies have imposed on for-profit schools to protect against predatory conduct — and to escape the stigma created by bad behavior among many players in the industry. For years, the Department of Education appeared to rubber stamp many of these conversions without regard to the fact that, in many cases, the arrangements have allowed the former owners to keep making big money, while enjoying the advantages of non-profit status. But in 2019 the Department rejected Grand Canyon’s bid to be reclassified as non-profit for federal aid purposes, even though the Internal Revenue Service, another agency that normally rubber stamps these bids, had approved the school as a non-profit. 

Phoenix-based GCU received $864 million from taxpayers for Department of Education federal student grants and loans in academic year 2020-21, accounting for almost seventy percent of the school’s revenue. GCU’s haul from taxpayers that year, the most recent year of data available from the Department, made it by far the biggest recipient of federal student aid among schools that are classified by the Department as for-profit. (The runner-up for-profit schools that year also have faced multiple law enforcement controversies: the University of Phoenix, which got $662 million, and Perdoceo, which got $571 million.)

Brian Mueller, who serves as both the president of non-profit Grand Canyon University and the CEO of for-profit Grand Canyon Education, complained at length about the government investigations in remarks published this evening in the Washington Examiner. Mueller told the conservative outlet, “We’re well supported locally in our state by both Republicans and Democrats, and so people say, ‘Why are they doing this? Is it ideological? Is it political? Is it religious?’ The answer is we don’t know.”

In its press release, Grand Canyon calls itself “the largest Christian university in the country.”

In a statement, a spokesperson at the U.S. Department of Education responded to GCU’s allegations, confirming the probe of the school: “the Department included specific terms in the program participation agreement that allows Grand Canyon to participate in federal student aid programs. Those terms are designed to protect students from what the Department determined were misrepresentations regarding the cost of some students’ programs. This is the Department taking reasonable and prudent actions as a regulator.”

GCU, which says it has 25,800 students on its Phoenix ground campus and 92,000 online, reached a new provisional program participation agreement with the Department in the past few weeks. Republic Report is seeking a copy of the agreement from the Department, so the public can see exactly what conditions the Department imposed on GCU’s continued participation in federal student aid. 

The Department of Education statement added, “The U.S. Department of Education (Department) is committed to holding schools accountable for serving students’ best interests. We take our oversight obligations seriously, follow the facts where they lead, and will not be dissuaded from enforcing the law and protecting students, taxpayers, and the federal student aid program.” 

As a publicly-traded company, Grand Canyon Education has an obligation to make public filings to the U.S. Securities and Exchange Commission, and thus to investors, about law enforcement investigations of the company. In its most recent quarterly filing with the SEC, from August, the company disclosed that it received from the FTC two civil investigative demands, in 2022 and 2023. There is no mention of an investigation by the Department of Education.  I don’t know when Grand Canyon University and Grand Canyon Education learned of the Department probe, but I believe GCE would be obligated to file promptly SEC disclosures regarding an investigation of GCU, which with it is so closely intertwined. 

The GCU press release echoes Mueller’s suggestion that federal investigators have improper motives, asserting that ongoing probes are being conducted “for political or ideological reasons we don’t understand.”

But we note that it was the Trump administration and its Secretary of Education Betsy DeVos — who staffed her Department with former for-profit college executives and did almost nothing to curb abuses in the career college sector — that, in late 2019, rejected GCU’s application to be re-classified for federal student aid purposes from a for-profit college to preferential non-profit status. That DeVos decision came after GCU restructured itself into two entities: a non-profit college and a for-profit company that gets paid to provide a range of services to the university.

Secretary DeVos had good reason to reject Grand Canyon’s conversion. Not only is Brian Mueller the head of  both the non-profit school and the for-profit servicing company, but also the for-profit company has been getting about 95 percent of the non-profit college’s revenue.

In February 2019, Mueller had bragged to Wall Street investors that enrollment at the school is up, profits for the company are up, and prospective students love hearing that the school is non-profit. “Being out there a million times a day saying ‘we’re nonprofit’ has had an impact,” Mueller told an investor call, adding that actual non-profit colleges had “bullied” Grand Canyon’s target customer “every single day for ten years that you shouldn’t go to a for-profit institution.”

The Trump-DeVos Department of Education found that “the primary purpose” of the Grand Canyon conversion “was to drive shareholder value for GCE with GCU as its captive client — potentially in perpetuity.”

Grand Canyon sued the education department, seeking to overturn DeVos’s decision, but last December an Arizona federal judge rejected the school’s claims. Grand Canyon has filed an appeal to the Ninth Circuit Court of Appeals; the case is set for oral argument in December. 

UPDATE 10/06/23 9:37 pm:

A Department of Education spokesperson provided an additional statement tonight:

“The U.S. Department of Education is committed to holding schools accountable for serving students’ best interests. We take our oversight obligations seriously, follow the facts where they lead, and will not be dissuaded from enforcing the law and protecting students, taxpayers, and the federal student aid programs.  We are unapologetically challenging schools that mislead their students, whether for profit or not.

“For this particular school, the Department determined, under the last Administration, that GCU does not meet the Higher Education Act’s definition of a non-profit because the majority of GCU’s revenues continued to go to its former owner, a for-profit entity. The school sued to challenge this determination, twice, and the Department prevailed, twice. The school appealed both of those cases. The Department prevailed in the first appeal, and the appeal in the second case is pending.

“Unrelated to those lawsuits, through a separate investigation, the Department determined that fewer than 2% of the students who graduated from GCU’s doctoral programs that require dissertations paid the amount that GCU advertised as the total cost. GCU has not disputed this statistic. Most students paid thousands more than the advertised cost. In light of these substantial misrepresentations and other compliance issues identified by the Department, the Department included specific terms in the school’s Provisional Program Participation Agreement to allow it to participate in the federal student aid programs. Those terms are designed to protect students from substantial misrepresentations regarding the cost of their programs. This is an example of the Department taking reasonable and prudent oversight actions as a regulator to protect students and taxpayers and has nothing to do with the school’s religious affiliation as a Christian University or history of litigation against the Department.”