Grand Canyon University Wins Nonprofit Appeal as Policy Shifts Loom

In a recent federal appeals court ruling that could upend the world of for-profit colleges, Grand Canyon University (GCU) secured a court victory in its long-standing legal battle for federal nonprofit recognition. The federal appeals court’s decision comes amid extensive scrutiny of GCU’s operations by multiple federal agencies, including the U.S. Department of Education (ED) and the Federal Trade Commission (FTC).

As the university awaits a second round of ED review, the anticipated education policy shifts under the forthcoming Trump administration could significantly impact GCU’s nonprofit aspirations.

GCU’s Journey from Nonprofit to For-Profit and Back

GCU was founded as a nonprofit Christian institution date back to its founding in 1949. However, financial distress led the university to convert to a for-profit model in 2004, backed by a group of private investors and steered by its parent company, Grand Canyon Education, Inc. (GCE). While the move provided much-needed stability, it also brought new challenges as GCU, now a for-profit institution, faced the mounting skepticism and regulatory scrutiny often directed at for-profit colleges.

After nearly a decade of expansion, GCU sought to shed its for-profit label, citing concerns over the “stigma” tied to such institutions. In 2018, GCU restructured its relationship with GCE, declaring itself a nonprofit under the IRS and Arizona state law while maintaining close operational ties with its parent company.

The IRS granted the university nonprofit status, and the Arizona state government recognized it as such. However, the U.S. Department of Education took a different stance, denying GCU’s application to be federally recognized as a nonprofit under Title IV of the Higher Education Act (HEA).

The Department of Education’s Stance: A Profitable Nonprofit?

The Education Department’s 2019 denial hinged on a financial arrangement between GCU and GCE, wherein the university agreed to pay GCE 60% of its adjusted gross revenue in exchange for marketing, enrollment support, and other operational services. ED argued that this entanglement blurred the lines between the two entities, effectively making GCU a “captive client” of GCE.

The department’s ruling stated that the arrangement primarily benefited GCE’s shareholders, which contradicted the tax-exempt purpose required of a true nonprofit institution.

This ongoing financial dependency on GCE set GCU apart from a traditional nonprofit structure, and the ED required the university to adhere to specific regulations designed for for-profit institutions, including the stringent 90/10 rule. This rule mandates that no more than 90% of a for-profit institution’s revenue come from federal financial aid, a condition generally not applied to nonprofits.

Multiple Legal and Regulatory Battles

The Education Department’s decision triggered a multi-year legal battle, leading to a lawsuit filed by GCU in 2021 challenging the denial. GCU argued that the department’s refusal was unwarranted, given its alignment with IRS guidelines and Arizona’s nonprofit designation. The university also contended that the department’s oversight contradicted the judgment of other regulatory bodies, painting GCU as a unique target among similar institutions.

This lawsuit against the Department of Education was one of several legal challenges for GCU. In 2023, the FTC filed a separate lawsuit accusing GCU of misleading marketing tactics, claiming that it falsely advertised its accelerated doctoral programs to prospective students. According to the FTC, GCU promoted certain doctoral programs as quick and affordable, when in reality, students were often required to take expensive continuation courses to complete their degrees—causing tuition costs to balloon unexpectedly.

The university was also hit with a record $37.7 million fine from the Education Department for allegedly deceiving more than 7,500 students on program costs. ED alleged that GCU failed to disclose the true expenses of its doctoral programs, as nearly all doctoral students ended up needing additional costly courses beyond the initial quoted tuition.

Despite these financial and reputational setbacks, GCU pushed forward, disputing the allegations and continuing its nonprofit campaign.

A Federal Court Victory

In November 2024, a unanimous Ninth Circuit Court of Appeals ruled in GCU’s favor by finding the Education Department had used an improper legal standard when assessing GCU’s nonprofit status application. The court’s ruling mandates that the department re-evaluate GCU’s application under the correct legal criteria, offering the university a second chance at achieving nonprofit designation.

Brian Mueller, who serves as both GCU’s president and the CEO of GCE, lauded the decision as a triumph over federal “overreach” and expressed optimism that the department will reconsider its stance. The Ninth Circuit’s ruling injects new life into GCU’s ambitions, aligning with the university’s view that it has been unfairly targeted by federal agencies despite its IRS-approved nonprofit status.

Potential Dangers of For-Profit Schools

For-profit educational institutions have long been associated with higher tuition costs, aggressive marketing tactics, and significant student debt burdens. These colleges often rely heavily on federal financial aid to operate and, in some cases, employ misleading practices to inflate enrollment and revenue. For students, attending a for-profit school can mean incurring debt without corresponding job prospects or salary gains, leading to long-term financial strain.

Critics argue that if GCU succeeds in its quest for nonprofit status without truly altering its financial arrangements, the ruling could set a precedent allowing other for-profit colleges to rebrand without fundamentally changing how they operate. This could expose students to more misleading practices as for-profits race to claim the benefits of nonprofit status, including tax exemptions and the reduced oversight afforded to nonprofit schools.

A reclassified GCU, without changes to its profit-driven structure, could see a surge in enrollment from students who mistakenly believe that nonprofit status guarantees quality and affordability.

Steps for Students: Avoiding Common Pitfalls

Before committing to any college or university, students should take proactive steps to protect themselves from potential misrepresentation or high-cost education traps. Here’s what to consider:

1. Research the School’s Financial Model: Determine if the institution is nonprofit or for-profit and investigate its financial arrangements. For example, GCU’s relationship with GCE involves substantial revenue-sharing, which could impact its educational focus and priorities.
2. Review Accreditation and Financial Aid Requirements: Confirm the institution’s accreditation status, which can affect credit transferability and eligibility for federal financial aid. Ensure you understand the 90/10 rule and other for-profit regulations that may apply.
3. Scrutinize Program Costs: Pay close attention to the advertised cost of the program, especially if the school offers “accelerated” degrees. Ask admissions representatives to outline any additional fees, courses, or requirements that could inflate tuition costs.
4. Seek Out Student Reviews and Outcomes: Look up alumni reviews, employment outcomes, and graduate success rates. Websites like College Scorecard provide data on median salaries, average student debt, and graduation rates.
5. Beware of High-Pressure Sales Tactics: If a school’s admissions team seems overly aggressive or pushes for immediate enrollment, take that as a warning sign. Reputable institutions prioritize transparent information over high-pressure marketing.
6. Understand Refund Policies: In cases like the 2020 COVID-19 class action against GCU for lack of refunds, it’s crucial to understand refund policies in advance, especially for unexpected situations that may interrupt your education.

Potential Impact of Trump Administration Policies

As GCU celebrates its legal win, another major development looms: Donald Trump’s anticipated approach to education policy. President-elect Trump has signaled plans to substantially reform the Education Department, and in some cases, dismantle it. Key aspects of his proposed reforms involve reducing federal intervention in education, empowering states with more control, and supporting religious and private educational institutions. In a recent policy outline, Trump’s team indicated that his administration may work to lessen regulatory burdens on institutions like GCU, going so far as to dismantle the US Department of Education entirely.

The implications for GCU are potentially significant. Trump’s policy directions suggest a favorable environment for faith-based institutions and nonprofits, as well as an aversion to the regulatory intensity currently applied to for-profit colleges.

A Changing Landscape for Education and Nonprofits

Grand Canyon University’s recent legal victory and the anticipated policy shifts under Trump’s administration signal a potentially transformative moment for the institution. Achieving federal nonprofit status could shield GCU from certain for-profit regulations and improve its reputation among students and educators alike. However, the complex relationship with GCE remains a point of scrutiny that could complicate its path forward.

Ultimately, GCU’s story underscores the evolving nature of nonprofit recognition in higher education and highlights the role federal policies play in shaping institutional identities. As Trump’s administration looks to redefine the U.S. Department of Education’s role, GCU stands on the brink of a major transformation—one that could redefine its future and influence similar institutions across the country.