On Thursday, Dec. 2, Higher Ed Drive reported that a judge has rejected GCU’s bid to overturn its for-profit status.
Natalie Schwartz reports that U.S. District Judge Susan Bolton rejected GCU’s bid to reverse the U.S. Department of Education’s decision to consider the institution a for-profit under Title IV, the law governing federal student aid.
According to Schwartz, the ruling means GCU must continue to follow a stricter set of regulations than nonprofit colleges do.
In 2018, GCU split from its former owner, Grand Canyon Education, or GCE. And this is where the legal battle begins.
Per the report from Schwartz, GCU entered into an agreement under which it pays 60 percent of its adjusted gross revenue to the company in exchange for support services, such as marketing.
This is a 15-year contract, which renews every five years, according to court documents.
In Nov. 2019, GCU issued a response to the U.S Department of Education. This response was to the department’s decision to continue to regard GCU as a for-profit institution for the purpose of receiving federal aid.
From GCU’s response:
“By the Department’s own metrics, GCU has been a resounding success story, with the University’s most recent cohort loan default rate of 5.6% for the 2016 cohort (the latest year for which data is available), well below the national average of 10.1%, no failing programs under the former gainful employment rules, and a 90/10 calculation of 72.91% for the year ended June 30, 2019, well below the Department’s 90% requirement. The University has also invested over $1.5 billion back into the development of educational infrastructure over the last 10 years. And, all of this has been accomplished without raising tuition on the University’s ground campus for 12 straight years and with only nominal 1% annual increases in online tuition over the last 10 years. As a result, after institutional scholarships, students attending the University’s traditional campus pay on average only $8,700 per year in tuition. Average room and board costs at GCU ($8,038) are also well below the national averages for public four-year schools ($11,510) and private, nonprofit four-year universities ($12,990), according to the College Board, as the University is intent on making private Christian education affordable to all socioeconomic classes of Americans. The University’s students graduate with less debt on average ($18,750 according to the latest College Scorecard data) than at public and private nonprofit universities ($28,650 according to 2017 data from the Institute for College Access & Success). A tremendous benefit of the University’s low cost of attendance is that the University has created one of the most diverse student bodies in the country with its ground campus student body consisting of 47% students of color, including 29% Hispanic and 7% African-American.”
Department of Education’s Response
The Department of Education said it “has concluded that the primary purpose of the MSA, and by extension, the Transaction, was to drive shareholder value for GCE with GCU as its captive client – potentially in perpetuity.
You can read the Department of Education’s response fully, at this link.
More from the Higher Ed Drive report in 2019.
“The department wrote that although the organizations have independent boards, Mueller is also a GCE shareholder. It called the dual positions “obviously conflicting loyalties,” saying it is “not satisfied” the current setup ensures Mueller’s “undivided loyalty is to the Institution.
“GCU says its accreditor approved the dual role and had “far greater substantive interaction” with the university during its own review process.”
Following the Department of Education’s response in 2019, GCU sued the Department in 2021, saying “it overstepped its authority by declaring the institution was a for-profit under Title IV and that the agency had violated its First Amendment rights by requiring it to refrain from calling itself a nonprofit to receive federal financial aid.”
And on Thursday, Judge Bolton rejected those arguments. And per Thursday’s report, Bolton acknowledged the same Master Services Agreement that the DOE did in 2019 in its response.
GCU’s Response to Thursday’s Ruling
“GCU will continue to operate as a legal nonprofit entity while continuing to produce unprecedented results addressing the major issues affecting higher education — specifically the high cost of education, amount of student debt, lack of relevant industry-oriented programs and declining diversity on college campuses.”