July 7, 2018; Phoenix New Times
It would have been hard to imagine that after less than 15 years, the self-described “little school that refused to die” would be returning to its nonprofit roots hundreds of millions richer and tens of thousands students bigger. Effective this past July 1st, Grand Canyon University has split into for-profit and nonprofit companies.
With the conversion, Grand Canyon joins a number of other for-profits that have converted into nonprofit universities in recent years, including, according to a 2015 Atlantic article, Herzing University, Remington Colleges, Everglades College, and the Center for Excellence in Higher Education. More recently, as Inside Higher Ed has covered, the nonprofit Purdue University acquired for-profit Kaplan University. Additional conversions, notes Inside Higher Ed, are in progress, including Bridgepoint Education’s effort to convert Ashford University into a nonprofit and National University’s announced intention to acquire for-profit Northcentral University.
Two things that make the Grand Canyon case more unusual, however, are its prior status as a nonprofit—the school was originally founded as a nonprofit university in Prescott, Arizona in 1949—and the scale of its operations.
As Joseph Flaherty writes in the Phoenix New Times, “The university’s academic assets were sold to a new, nonprofit entity for around $875 million on July 1. Meanwhile, the profit-seeking company that formerly owned the school, Grand Canyon Education, Inc., will handle campus operations like marketing and financial aid processing through a 15-year contract, in exchange for a hefty share of GCU’s tuition revenue.” In theory, this action enables the for-profit Grand Canyon Education Inc. (GCE) to pursue higher education service contracts at other institutions, while the nonprofit university can focus specifically on improving its academic outcomes.
In 2004, a near-death Grand Canyon University was purchased by for-profit investors seeking to replicate the wild success of another infamous Arizonan for-profit, the University of Phoenix. It was four years later in 2008, however, that GCU really began its major shift into the institution that it is today. Under the leadership of Brian Mueller, the current CEO, the university went public, netting a hefty $230 million payday from its initial public offering (IPO), ushering in a period of rapid expansion.
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This robust growth not only improved the quality of education both online and on campus, but the surrounding area of Phoenix as well; it has been credited with completely revamping one of the city’s worst crime areas by Arizona Gov. Doug Ducey, economists, and Arizona State University alike, providing an estimated annual impact of nearly $660 million with its community initiatives. This expansion is completely distinct from what other for-profits have experienced within the past few years. Numerous campuses have closed down—some with active students that were then left in the lurch—with well-known names like the University of Phoenix downsizing heavily.
While Grand Canyon U has had impressive results as a for-profit, many have been concerned with the for-profit industry’s problematic past as a whole. According to the Century Foundation, schools have engaged in “manipulative sales tactics, hired unqualified faculty, enrolled unprepared students…all while leaving students with crushing student loan debts and school executives with bulging bank accounts.” Several formerly for-profit colleges, as NPQ has covered, lapsed back into malicious practices, such as Keiser University, which was sued for illegal marketing practices. How can we be certain that GCU, in a time of relaxed for-profit standards, will—as former Education Secretary John B. King Jr is quoted in an NPQ piece—create “a way to avoid oversight while hanging onto the financial benefits”?
Despite claims of predatory enrollment and student financial troubles, GCU’s student loan default rate sits at an impressive 6.2 percent for the graduating student cohort, which is actually just below the University of Arizona’s rate, and is significantly lower than the national averages for public, private, and, most notably, for-profit universities. Another often cited statistic of GCU’s success is its performance with the 90/10 rule, or the regulation that requires all for-profits to “derive no more than 90 percent of its revenues from…federal student aid programs.” At GCU, this percentage is 72.3. While these data points prove that escaping federal limits on student-aid dollars for for-profit institutions was not a primary rationale, the number is still high compared to Arizona’s flagship institution, for which the percentage is 32 (state and federal combined).
With such impressive statistics for a for-profit institution—and even for a nonprofit—why did Grand Canyon U decide to switch its status? One particularly large benefit is that the university no longer has to pay property taxes on its sprawling 275-acre urban campus, which Mueller says will be going towards a plethora of investment projects, including in academic opportunities for both staff and students, infrastructure, tuition stabilization—meaning we may see the default rate decrease even further—and NCAA membership. These additional funds will also be joined by GCU’s new eligibility for federal grants and philanthropic donations. By far the biggest boon of this transition, however, is being able to break free of the unscrupulous connotations that come with being a for-profit institution, as has also been covered previously by NPQ.
Critics say that Brian Mueller’s dual role as GCU’s president and GCE’s CEO is a conflict of interest, as he could use his position in the nonprofit to steer revenue toward the for-profit, and therefore his own pockets. He is now accountable to the board of directors, meaning ineffectiveness of any sort would put him at risk of replacement if the board provides the necessary and expected oversight. We hope that the board exercises sufficient oversight to keep Mueller and others in line, but of course we all know of boards that have failed to fulfill this responsibility.
As Arizona State University said in a statement to the Phoenix New Times, “Arizona needs more high-quality college graduates, and we recognize the role GCU plays in contributing to our graduate pool and strengthening the Phoenix metropolitan area overall.” In any case, this is a case worth watching.—Moshe Hecht