Grand Canyon University v. U.S. Department of Education

For over half a decade, federal officials have wrestled back and forth with GCU.

A note to our readers: This is a piece of investigative journalism, diving into the half-decade long conflict between Grand Canyon University and the U.S. Department of Education surrounding their tax status and degree-pricing practices.

GCU is the nation’s largest Christian university, serving over 100,000 students. It also happens to be located in the heart of the Phoenix Valley. Its struggle against the federal government in recent years is therefore directly relevant to Arizonans, and to residents of the broader American Southwest.

We encourage all of our readers to engage critically with the evidence gathered and the narrative painted — our republican form of government relies upon people making up their own minds, after all.

We also would like to thank Brian Mueller, the president of GCU, for agreeing to sit down for an interview that informed the authors’ investigation.

“[W]e are cracking down not only to shut them down, but to send a message to not prey on students.” So said Miguel Cardona, the Secretary of the U.S. Department of Education (ED), while testifying before the U.S. House Appropriations Committee. He was referring to the nation’s largest Christian university, Grand Canyon University (GCU), which now serves over 100,000 students.

For over half a decade, federal officials have wrestled back and forth with GCU on everything from their tax status to their degree-pricing practices.

In October of last year, the Department levied a nearly $40 million fine against the institution on the grounds that they had deceived their students. “An FSA investigation found GCU lied to more than 7,500 former and current students about the cost of its doctoral programs over several years,” a press release announcing the fine reads. “GCU falsely advertised a lower cost than what 98% of students ended up paying to complete certain doctoral programs.”

GCU has refused to cede an inch, claiming they maintain fair pricing practices, and that they are being targeted by the Biden Administration.

The university responded to Cardona’s latest comments in a press release: “Regarding Cardona’s misguided comments that GCU ‘lied’ and ‘preyed’ on students, we have asked ED repeatedly for evidence of intent and verified student complaints, and they have refused to provide us with that information.”

Before cataloging the Department and the university’s competing claims, it's worth digging into GCU’s history. A proper understanding of how they grew is key to a thorough understanding of their present woes.

The Servicemen's Readjustment Act, better known as the G.I. Bill, was passed into law with unanimous Congressional approval and signed into law by Franklin Delano Roosevelt in 1944. Following its ratification, a veteran who served for at least 90 days was eligible to receive up to $500 (the equivalent of nearly $9,000 in 2024) in subsidy to pursue postsecondary education or workforce training.

Men returning from war-torn Europe and the beaches of Guadalcanal not only sought food and shelter — they wanted to take full advantage of their hard-won peace. These 10 million retiring soldiers ached to build families, raise children, and seize a chance at “getting ahead.” For many, that chance was a college education. The G.I. Bill was their ticket to ride.

College enrollment skyrocketed in the years following the Second World War, with the G.I. Bill driving this trend. Existing institutions expanded and new institutions sprouted up from the shores of California to the valleys of Appalachia. One such institution was Grand Canyon College (GCC). Established in 1949 by the Arizona Southern Baptist Convention, GCC was a non-profit university charged with delivering a Christian higher education to its students. The college boasted only 100 students when it first opened its doors in Prescott, Arizona — though the town itself was only home to 6,734 residents at the time.

The university moved to Phoenix, the state capital, in 1951, because they wanted to grow their campus to incorporate more disciplines of study and to accommodate more students.

At its beginnings the school made a religiously-inspired education available primarily to Baptist Christians in the American Southwest. In 1984, the school voted to transition to being a university, as opposed to a college. As part of this shift, GCC transferred its governance from the Southern Baptist Convention (SBC) to an independent board of trustees in 1989. They also changed their name to GCU, signaling planned growth. During the 1999-2000 academic year, GCU officially severed its affiliation with the SBC.

From their founding on, the school was beset by financial struggles. “Grand Canyon, from its first day, was on thin ice,” said former president Dr. Gil Stafford. “The institution was always in dire straits.” These woes came to a head in 2004, when GCU was purchased by Significant Education, LLC. Upon its purchase, GCU became a for-profit corporation, making it the first for-profit Christian university in the United States.

In 2008, Significant Education became Grand Canyon Education, Inc. (GCE). GCE exists as a separate entity that supports GCU’s operations, online education offerings, and program development. It became publicly traded on the NASDAQ in the same year under the ticker symbol, “LOPE.”

GCU’s restructuring enabled the university to raise more capital and expand their operations and degree offerings. Its enrollment skyrocketed over the course of the next decade. An institution once beset by financial struggles experienced an unprecedented influx of students, cash, and capital — they were quickly able to balance their books and pay back long-owed debts.

It’s rise was not unmarked by controversy. In the mid-2010s, university leadership explored a reversion to non-profit status. The Higher Learning Commission (HLC), their institutional accreditor, rejected GCU’s application in 2016. The HLC cited GCU’s close relationship with GCE, which would remain a for-profit entity if the university transitioned to non-profit status. In order to become a non-profit, HLC’s board said, it must maintain “both teaching and learning as well as service functions within the accredited structure.” Outsourcing such functions to GCE, a for-profit corporation, was unacceptable.

In 2018, GCU succeeded in transitioning to non-profit status. The HLC relented, citing changes GCU made to their original proposal. Purdue University had also recently acquired Kaplan University, which maintained a similar relationship with an outside for-profit entity that GCU would maintain with GCE if permitted by the HLC — meaning there was precedent for this arrangement.

GCU quickly gained recognition from the Internal Revenue Service (IRS) as well as state entities, but the U.S. Department of Education (ED) stood firm: They claimed GCU was a “captive entity” of GCE. After a prolonged legal battle, the U.S. Court of Appeals for the Ninth Circuit ruled in a 3-0 decision this November that ED had acted outside its authority in denying GCU this status. They remanded the case back to ED, ordering them to reassess their decision.

As mentioned previously, this decision by the courts followed ED’s levying of an historically large fine on GCU for their alleged deception of doctoral students regarding the total price of their degrees. ED claimed only 2% of GCU doctoral students paid the advertised sticker price for their credential — 78% paid at least 25% more than originally advertised. Much of the additional cost came as a result of “continuation classes” students are required to take as they wrap up their dissertations.

GCU leadership responded by making clear they provide more pricing information to students than is legally required. They also maintain a degree program calculator many students use. This calculator reflects more accurate total costs than sticker prices. In addition, they argue other universities employ similar practices and have not faced the sanctions GCU has as a result.

At the core of GCU’s battle with ED is their relationship with GCE, which receives approximately 60% of the university’s revenue. GCU maintains GCE pays fair market value for every service they render the university. GCU’s critics say there isn’t a clear wall of separation between the for-profit and non-profit, and in turn, GCU should not be recognized as a non-profit.

Brian Mueller, the president of GCU and the CEO of GCE, told the Tribune prior to the court’s decision that he doesn’t “know why we can’t come to an agreement, we have flourished as a non-profit, it’s been impressive, and we do not understand why they are not recognizing us, it is a mystery.” Interestingly, he doesn’t suspect anti-Christian bias, as some conservative media outlets and activist groups claim.

Responding to criticisms about GCU’s close relationship with GCE — and his status as president of one and CEO of the other — Mueller said he sees no reason this arrangement could be illegal, or even suspect. GCE provides GCU services they pay for at fair market value, he said, and this doesn’t imply any rotten relationship between the two entities.

Critics can no longer place their faith in regulators at ED to reign in GCU, especially in the wake of the U.S. Supreme Court’s reversal of Chevron deference, which curtailed the power of federal agencies. One of their only hopes is Congressional action, most likely through a reauthorization of the Higher Education Act.

For all these disagreements, no one can deny GCU is now a major player in Arizona’s economy and the nation’s higher education economy. It educates over 100,000 students, is the largest recipient of federal student aid of any university in America, and continues to expand its real estate footprint in the nation’s fifth largest city. Now it seems poised to maintain its nonprofit status, potentially even receiving long-sought-after recognition by ED.

Joe Pitts is the cofounder and CEO of the Western Tribune. He is a senior columnist at 1912.

Joseph Kavetsky is managing editor at 1912.