FAQs for transaction to re-establish GCU as a nonprofit institution

Editor's note: These FAQs, originally posted on Jan. 5, 2018, were updated on July 2, 2018, to reflect the completion of the transaction.

Why is GCU returning to its nonprofit status?

The transaction reverts the University to the historical nonprofit roots it held from 1949-2004. That is in the best long-term interests of our students, faculty and staff, and community, in that it would:

In short, this return to our historical nonprofit status conveys an accurate reflection of who GCU is today and will be in the future.

How does this impact Grand Canyon Education, Inc.?

Grand Canyon Education (GCE) will continue as a tax-paying, multi-billion-dollar market cap, publicly traded company in the fast-growing educational services industry, with its headquarters in Phoenix.

GCE is uniquely positioned in the education services industry in that its leadership has 30 years of proven expertise in providing a full array of support services in the post-secondary education sector and has developed significant technological solutions, infrastructure and operational processes to provide superior service in these areas on a large scale. GCE provides services that support students, faculty and staff of partner institutions such as marketing, strategic enrollment management, counseling services, financial aid processing, technology, technical support, compliance, human resources, classroom operations, curriculum development, faculty recruitment and training, among others.

There is also the potential for GCE to provide services not only to other universities but also to Christian high schools across the country.

What is the structure of the new organizations?

GCE has transferred to GCU the real property and improvements comprising the GCU campus as well as tangible and intangible academic and related operations and assets related to a nonprofit entity that will retain the GCU name. The purchase price, following post-closing adjustments, will be approximately $875 million, which GCU paid through the issuance of a seven-year, senior secured note.

GCE has entered into a long-term master services agreement with GCU to provide technology, academic and counseling services and support, marketing and financial aid processing to GCU and potentially, in the future, to other institutions.

Academic leadership and instruction reside with GCU along with departments such as Student Services, Facilities, Public Safety and Athletics.

The shared services arrangement between GCE and GCU is similar to that at hundreds of nonprofit universities in the country that outsource services to for-profit third-party providers. Moreover, in connection with the transaction, GCU commissioned studies to ensure that the rates and terms of the services arrangement are consistent with those market norms.

What happens to employees of GCE/GCU?

The faculty, academic leadership and related staff, which includes approximately 35 percent, or 1,400, of GCE’s full-time employees and substantially all of GCE’s 6,000 part-time and adjunct employees and student workers, transferred their employment to GCU. GCE continues to employ approximately 2,600 full-time employees and owns an office complex at 2600 E. Camelback Road in Phoenix from which most of its continuing employees will continue to work.

Who now governs GCU and GCE?

The two entities are overseen by completely independent governing boards. In fact, no member of GCU’s Board of Trustees has ever served in a management or corporate board role with GCE. GCU has adopted a conflict of interest policy that prohibits any trustee from having a financial interest in, or role with, GCE.

Brian Mueller, who has served as CEO of GCE since 2008 and Chairman of the Board of GCE since 2017, will continue to serve in those roles for GCE. Mr. Mueller will also continue to serve as President of GCU, a position he has held since 2012. Such dual roles are permitted under guidelines adopted by the Higher Learning Commission. Aside from Mr. Mueller, no other employee of GCU or GCE has a dual role in both organizations.

Has GCE/GCU received all of the necessary regulatory approvals?

Approval for the transaction has been received from GCU’s regional accreditor (the Higher Learning Commission) and its state regulator (the Arizona State Board for Private Postsecondary Education). In addition, GCU has received approval to operate as a 501(c)(3) from the Internal Revenue Service.

GCU has not yet received a response from the U.S. Department of Education regarding its request for a pre-acquisition review of the transaction, which was filed in January. A pre-acquisition review involving a change in control transaction is a voluntary step that companies in this sector often undertake in order to get the Department of Education’s view of a transaction. Ultimately, the Department of Education does not actually approve change of control transactions (i.e. approve of the subject educational institution’s continued participation in federal Title IV student loan programs) until some number of months after closing.

Does this affect GCU’s accreditation?

Not at all. GCU received approval for this change of control from its regional accreditor, the Higher Learning Commission. HLC recently reaffirmed the University’s accreditation for 10 years – the maximum extension the HLC offers.

GCU has an exemplary record of regulatory compliance, including visits from six major accrediting bodies within the past two years. In addition to the HLC reaccreditation, GCU recently received the maximum 10-year accreditation from the Commission on Collegiate Nursing Education; completed the four-year transition to NCAA Division I athletics; completed a Veterans Administration audit with no financial findings; received a 10-year reaccreditation from the Accreditation Council for Business Schools and Programs; and has been granted associate membership of the Association of Theological Schools as it completes the process for full accreditation.

Is GCU doing this to avoid federal regulations aimed specifically at the for-profit sector of higher education?

No. GCU has very strong metrics for all of the current regulations. For example, because GCU maintains affordable tuition, none of its programs failed the gainful employment regulations. GCU’s loan default rate will be an estimated 6.2% for the most recent cohort – well below federal guidelines. For the 90/10 rule, GCU sits at 72.3% (and dropping).

The University supports measures that ensure educational institutions are meeting recognized standards – particularly as it relates to student support services, academic integrity and financial transparency – and believes those measures should apply to all institutions (for-profit and nonprofit).

How is this different than GCU’s initial application to convert to a nonprofit in 2015-16?

GCU initially explored reverting to its nonprofit status in 2015-16. That application was denied by the HLC, in part, based on its view that it did not have the necessary guidelines in place to evaluate the type of shared services agreement that GCU and GCE proposed. In May 2017, GCU became aware that the HLC was considering adopting new accreditation guidelines that would allow HLC-accredited institutions to engage in shared services arrangements. Following the HLC’s adoption of those guidelines in November, GCU submitted its updated application on December 18, 2017.

What will be the state and local impact of this proposal?

If the State of Arizona would have sought to create a fourth major university years ago, it would have cost them billions of dollars. We have had the privilege of paying taxes to create what now exists at GCU.

This proposal provides the best of both worlds by re-establishing a regionally accredited, comprehensive, nonprofit university that can continue to grow and meet the demand of families interested in affordable, private higher education, while enabling GCE to become a tax-paying, multi-billion dollar market cap, publicly traded company in the fast-growing educational service market industry.

Combined, both entities will employ more than 4,000 people full-time in high-quality, high-wage jobs and an additional 6,000 in part-time, adjunct and student worker positions, with anticipated combined new job growth of 5 percent per year.

What are the tax implications of GCU returning to a nonprofit status?

GCU and GCE will continue to generate significant state, local and federal tax revenue.

From 2008 to 2017, GCE and its employees paid $824 million in federal, state and local income, sales and use, payroll, and real and personal property taxes, including $145 million in state and local taxes. In 2017 alone, GCE and its employees paid $141 million in federal, state and local income, sales and use, payroll and real and personal property taxes, including $24 million in state and local taxes. 

The vast majority of these taxes will continue to be paid subsequent to the closing of the transaction as GCU and its students will continue to pay sales and use taxes on its ongoing construction, operations and student spending and the University and its employees will continue to pay payroll taxes. GCE will continue to generate significant tax revenue through sales, use, income, property and payroll taxes.

The only tax difference resulting from the transaction is slightly lower income taxes as University profits are not subject to income tax and the University’s campus will not be subject to property tax. GCE profits and property will continue to be subject to income and property taxes.

While public and private nonprofit universities pay no property taxes, GCE will continue to pay significant property taxes -- benefiting public school districts and homeowners in the Canyon Corridor. GCE will pay roughly $1.7 million in property taxes beginning in 2019 – an amount greater than what it paid as recently as 2013.

Does the establishment of the nonprofit change the overall mission of the University?

No. GCU believes the transaction will further the mission of the institution by providing opportunities to increase efficiencies by utilizing resources strategically that further the teaching and assessment of student learning, as well as the overall student experience. GCU’s Board of Trustees believes such a partnership will be beneficial based on the aligned goals of both organizations, as well as the integrity and ethics of both organizations.

How will the transaction affect GCU’s future growth plans?

It won’t. In the next five to seven years, the University expects:

What effect will this have on GCU’s involvement in the community?

It will make it easier for GCU to continue those investments. Among them: