Grand Canyon University Fine Controversy: A Deep Dive
Grand Canyon University (GCU), Arizona’s prominent private Christian university, has been embroiled in a series of controversies, most notably a significant fine levied by the U.S. Department of Education. This article delves into the details of the fine, the accusations against GCU, the university's response, and the broader context of GCU's nonprofit status and legal battles.
Background: GCU's History and Status
Founded in 1949, Grand Canyon University operated as a nonprofit institution for many years. However, in 2004, facing financial challenges that threatened bankruptcy, the university was sold to private investors and transitioned into a for-profit institution. Over a decade later, GCU sought to revert to its nonprofit status.
In 2018, Grand Canyon University split off from Grand Canyon Education (GCE), with the university entering into a 15-year contract for educational services in exchange for approximately 60% of its tuition and fee revenue. While the Internal Revenue Service (IRS) granted GCU tax-exempt status as a 501(c)(3) organization, the Department of Education did not recognize the university's nonprofit conversion for federal financial aid purposes. This split between the IRS and Arizona on the one hand, and the Education Department on the other, has meant Grand Canyon University has had to comply with certain regulations governing for-profit colleges.
The $37.7 Million Fine
In October 2023, the Department of Education announced a staggering $37.7 million fine against Grand Canyon University, the largest ever issued by the department against a university. The agency accused GCU of misleading thousands of current and former students about the costs of its doctoral programs. The fine was imposed after an investigation by the FSA determined that GCU lied to more than 7,500 former and current students regarding the cost of its doctoral programs, according to a press release.
The Education Department alleged that GCU advertised its doctoral programs as costing between $40,000 and $49,000. However, the agency found that less than 2% of graduates completed their programs within that advertised range. According to the Department of Education, 78% of graduates from these programs had paid $10,000-$12,000 more in total tuition than GCU advertised. The increase in total costs stemmed from "continuation courses"-classes that were required for most students to complete their dissertations but that GCU failed to make clear in enrollment and financial aid disclosures.
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“GCU lied about the cost of its doctoral programs to attract students to enroll,” said FSA Chief Operating Officer Richard Cordray. “GCU’s lies harmed students, broke their trust, and led to unexpectedly high levels of student debt. Today, we are holding GCU accountable for its actions, protecting students and taxpayers, and upholding the integrity of the federal student aid programs.”
The Department of Education found that GCU failed to abide by these requirements and failed to properly correct the problems in a timely fashion. The Department letter stated that the misrepresentations had been going on since at least 2017 and that the “fine print” disclosures GCU used were often misleading or incomplete.
GCU's Defense and Counterarguments
Grand Canyon University vehemently denied any wrongdoing and launched a multifaceted defense against the Department of Education's accusations. The university maintained that it provides robust information to students about the time, cost, and credits needed to complete a doctoral degree throughout their enrollment and onboarding process. GCU also argued that its disclosures surrounding continuation courses, which are common in higher education doctoral programs, provide more information than is legally required or that other universities typically provide.
Weeks before it was slapped with its record fine, GCU released a statement claiming that the government was "coordinating efforts to unjustly target GCU." The university alleged that the investigation into its tuition was in retaliation for a 2021 lawsuit filed against the Education Department for categorizing it as a for-profit university, which GCU has pushed back against. While the IRS does consider GCU to be nonprofit for tax purposes, the Education Department still classifies it as a for-profit school in relation to financial aid. This does not absolve the school of the $37.7 million fine, but it does mean that the Education Department could end up reclassifying GCU's profit status.
GCU President Brian Mueller suggested that the university was being unfairly targeted by the Department of Education. He particularly bemoaned the Department’s unwillingness to recognize its change from a for-profit university to a non-profit for federal financial aid purposes-a decision made during the Trump administration while Betsy DeVos was Secretary of Education. Mueller suggested that the refusal was due to some kind of animus.
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GCU filed an appeal to ED’s Office of Hearings and Appeals, maintaining that the unsubstantiated accusations were gross mischaracterizations based on isolated, out-of-context statements from certain enrollment documents and that, in fact, GCU students receive robust information about the time, cost and credits needed to complete a doctoral degree throughout their enrollment and onboarding process.
Legal Battles and Court Rulings
The dispute between Grand Canyon University and the Department of Education extended beyond the fine, encompassing the university's nonprofit status and allegations of misleading practices.
Lawsuit and FTC Allegations
Both GCE and Grand Canyon University also faced similar allegations from the Federal Trade Commission through a lawsuit filed last year. The lawsuit accused the university of telling applicants that they would only have to pay the equivalent of 20 courses to finish accelerated doctoral programs, even though almost all required more.
GCE faces another major lawsuit alleging the company has engaged in a racketeering scheme by misleading students about the cost of the university’s doctoral programs. Earlier this month, a federal judge rejected GCE’s motion to dismiss the case.
Not only is the FTC alleging GCU lied to students about the cost of its doctoral programs, the federal agency claims the schools advertised itself as a non-profit despite operating the school for profit for the university and its investors, reports AZ Family.
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Court Ruling on Nonprofit Status
In November 2024, a three-judge panel of the Ninth Circuit Court of Appeals ruled unanimously that ED acted unlawfully and exceeded its authority by applying an incorrect legal standard when it refused to acknowledge GCU’s lawful nonprofit status. The Ninth Circuit vacated ED’s erroneous determination and remanded the case back to the agency to apply the correct standard.
GCU is hopeful that process will be completed soon, as the IRS has already determined that GCU meets all legal requirements as a 501(c)(3) tax-exempt entity.
In 2019, the Education Department acknowledged that Grand Canyon University had met the regulatory requirements to be considered a nonprofit by Arizona and had been granted tax-exempt status by the IRS. In a lengthy explanation of its decision, the Education Department argued that the primary goal of the 2018 transaction was to “drive shareholder value” for GCE. Grand Canyon University asked the Education Department to reconsider its decision, but the agency reaffirmed the denial in 2021.
But a federal court ruled late last year that the agency applied the wrong legal standard when making that determination and ordered it to reconsider the university’s request under the correct statute.
Dismissal of the Fine Case
In a significant turn of events, the Education Department dismissed its case against Grand Canyon University in a Joint Stipulation of Dismissal order issued by the department’s Office of Hearings and Appeals. The university’s news release said the department “confirmed it has not established that GCU violated any Title IV requirements” and that there were no findings against the university.
The agency’s Office of Hearings and Appeals has now ruled in Grand Canyon University’s favor, dismissing the case “with no findings, fines, liabilities or penalties of any kind,” according to the institution.
District Court of Arizona dismissed the FTC’s lawsuit against Grand Canyon University, concluding the FTC does not have jurisdiction under the FTC Act because GCU is not a corporation “operating for its own profit or that of its members.” In fact, GCU has operated as a 501(c)(3) tax-exempt Arizona nonprofit corporation fulfilling charitable purposes for all but 14 years of its 75-year history and most recently since completing a transaction in 2018 to revert to that status. The District Court ruling emphasized that “the mere fact that a nonprofit is earning revenue and expanding does not transform it into a for-profit.
GCU President Brian Mueller said the fine dismissal is welcome news but he was not surprised by the decision. “The facts clearly support our contention that we were wrongly accused of misleading our Doctoral students and we appreciate the recognition that those accusations were without merit,” Mueller said.
Implications and Future Outlook
The dismissal of the $37.7 million fine against Grand Canyon University marks a significant victory for the institution. However, the broader legal battles and the ongoing debate over GCU's nonprofit status suggest that the controversies surrounding the university are far from over. The Education Department's decision to dismiss the case could be influenced by the Ninth Circuit Court of Appeals ruling on GCU's profit status.
The FTC lawsuit continues against Grand Canyon Education, which provides services to GCU, and Mueller despite the fact the lawsuit essentially raises the same manufactured nonprofit and doctoral disclosure claims that have been refuted, rejected and dismissed.
It is unclear whether the Education Department will appeal the appeals court ruling on GCU's profit status.
The resolution of these issues will likely have significant implications for Grand Canyon University, its students, and the broader landscape of higher education, particularly concerning the regulation of for-profit and nonprofit institutions.
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