GCU statement on Department of Education
(January 14, 2021) — Grand Canyon University, together with its students, faculty, staff and alumni, has accomplished a great deal in the 30 months since reverting to its historical status as an Arizona nonprofit corporation that is recognized by the IRS as a 501(c)(3) tax-exempt organization on July 1, 2018. GCU is proud of the fact that it was able to acquire the assets of the University at a purchase price that was well below fair market value, with an independent financial expert determining that GCU paid anywhere from 25%-60% less than fair market value for the assets acquired. In addition, an independent financial expert also determined that the master services agreement entered into at the closing of the transaction was at or below fair market value. GCU accomplished this by consummating a transaction that benefited the University, students, faculty alumni and community stakeholders. Furthermore, since the closing of that transaction in July 2018, and notwithstanding a once-in-a-century pandemic that has wreaked havoc on many great universities across the country, GCU has continued to freeze tuition on its Phoenix campus for the 13th consecutive year. Since closing the transaction, GCU has invested $250 million in new educational infrastructure and increased enrollment by approximately 14%, while also avoiding any layoffs or pay cuts to its faculty or staff, creating 466 new faculty and staff jobs on campus, and ensuring that all faculty and staff received pay increases.
In the two full fiscal years since acquiring the University, GCU has generated over $238 million in cash from operations, increased its net assets to $410 million as of June 30, 2020, and closed fiscal 2020 with over $307 million cash on hand while maintaining financial responsibility under the U.S. Department of Education’s standards. By any financial measure, including the opinions of two independent financial experts, the acquisition of the University and its financial performance over the last two years has been tremendously beneficial to the University and has enabled it to better serve students, faculty, staff, alumni and other members of the Phoenix community consistent with the University’s mission and Christian faith.
GCU’s successful financial model has translated to better educational and financial outcomes for its students. Since the closing of the transaction on July 1, 2018, 56,847 students have graduated from GCU. GCU bachelor’s degree graduates in 2019 and 2020 incurred less debt on average ($19,940 and $19,801, respectively) than the reported national average for 2019 graduates at public and private universities ($28,950), according to The Institute for College Access and Success. GCU’s cohort default rate on student loans is now at 5.6%, which is nearly half the national average. Additionally, based on the Department of Education’s own recently released metrics involving the amount of debt parents shoulder for their children to go to college, GCU ranks far down the list of colleges with high parent (PLUS) debt loans, with a median of $14,680 for all PLUS loan recipients and $9,500 for low-income recipients. According to the Department’s data, GCU’s PLUS debt levels are roughly half as much as those for parents of students at state universities in Arizona: University of Arizona ($33,007 for all recipients, $20,720 low-income recipients), Arizona State University ($27,194 and $19,019) and Northern Arizona University ($27,798 and $16,500).
GCU is also proud of the rich cultural diversity present throughout its student body, accomplished faculty, dedicated staff and celebrated alumni. The University’s ability to break down barriers to higher education is possible largely as a result of the University’s good financial stewardship, and GCU’s commitment to making higher education affordable and, therefore, accessible to all, regardless of socioeconomic status. GCU’s campus community largely mirrors the diverse neighborhood in which it resides with more than 90 different cultures and nations represented in GCU’s student body, of which 47% are persons of color. Based on the University’s most recent end-of-course surveys, GCU’s Black and Hispanic students rated their experience at GCU slightly higher than the rest of the student body, with 90.23% of Black students and 89.89% of Hispanic students indicating that they were likely to recommend GCU to others, compared to 88.63% for all students, and 89.45% of Black students and 88.57% of Hispanic students indicating that they were satisfied with their GCU experience, compared to 87.10% of all students. In addition to the student body, GCU is also proud of its diverse faculty and staff, with Black employees representing 13.2% of GCU’s total employees and Hispanic employees representing 8.9% of GCU’s total employees.
GCU students, faculty, staff and alumni have also exhausted significant time and money into its surrounding community in an effort to live out the University’s Christian mission through a comprehensive Five-Point Plan that is benefiting thousands of families beyond the University’s campus, along with the State of Arizona and the greater Phoenix metropolitan area. In particular, GCU’s Five-Point Plan has resulted in the creation of hundreds of jobs for local residents, the renovation of more than 300 homes in the University’s surrounding community that has increased resident’s home equity through a partnership with Habitat for Humanity, significantly improved neighborhood safety through an 11-year, $2.2 million partnership with the City of Phoenix, and supporting K-12 education through a dynamic tutoring/mentoring program that has impacted 4,700 students at 329 neighboring schools in the last six years, as well as a full-tuition scholarship program that has benefited 361 low-income students in the local community who otherwise may not have been able to afford college.
In spite of all of the above accomplishments, the United States Department of Education continues to denigrate the accomplishments of GCU’s students, faculty, staff and alumni and utilize their vast resources to obstruct GCU’s progress. Most recently, for example, GCU received a communication from the Department of Education indicating that the above noted accomplishments are “not remarkable for an institution of higher education.” Given GCU’s transformation from a university on the brink of bankruptcy a little over a decade ago to one that is now the largest Christian university in the country, such a comment is unfathomable considering the many issues facing higher education today. GCU’s free-market, student-focused approach has addressed the issues of high student debt and high tuition costs, lengthy degree completion times and students’ ability to repay student loans in positive ways that are benefiting students and their families. While faculty and administrative leaders from many universities have visited GCU to learn more about the University’s approach to higher education, Department of Education officials, despite repeated invitations, have never set foot on GCU’s campus to engage with the University’s students, faculty or staff.
An example of the efforts employed to obstruct GCU’s progress is the Department of Education’s refusal, 30 months after GCU’s conversion, to rightfully recognize GCU’s nonprofit status for Title IV, HEA purposes. Notably, this follows GCU’s extraordinary efforts to address every concern raised by the Department of Education in November 2019. Those efforts included adjustments to GCU’s master services agreement with its service provider (Grand Canyon Education), obtaining an updated transfer pricing study from a nationally recognized, independent accounting firm, Deloitte Tax LLP, that concluded GCU’s payment for services under the MSA were at or below fair market value, and hiring a nationally recognized, independent accounting and financial services firm, BKD LLP, to provide an opinion on the overall transaction to GCU. The results of BKD’s review and evaluation were summarized as follows in a cover letter to the University dated May 12, 2020 that was subsequently provided to the Department of Education:
“In brief, without fully restating those findings here, we concluded after our review and independent analysis of the Amended and Restated MSA and Deloitte’s April 29, 2020 Transfer Pricing Study, that the transfer pricing arrangement produces a fair and equitable transfer price for the respective services provided to GCU and contained in the MSA.
“We also evaluated the fair market value of the assets (invested capital) GCU acquired from Grand Canyon Education Inc. (“GCE”) as of the transaction date, July 1, 2018, and as of January 7, 2020. Based upon that we concluded that, on both dates, the fair market value of the purchased assets ($1,100,000,000 to $1,400,000,000) exceeded the purchase price paid of $877,459,000 by 25.4% to 59.6% respectively. GCU clearly underpaid for the assets acquired.”
All of the above stands in contrast to the 3 months it took for the Department of Education to recognize another former for-profit institution as a nonprofit after it completed a virtually identical transaction at the same time GCU completed its transaction. GCU’s master services agreement is also consistent with agreements entered into by hundreds of other universities and outside service providers throughout the country. The Department of Education’s refusal to recognize GCU as a nonprofit institution for Title IV, HEA purposes is clearly arbitrary and capricious. GCU’s nonprofit status is recognized by the IRS, the State of Arizona, the Higher Learning Commission and every other regulatory body that governs the University. The Department of Education, however, without any valid justification, continues to arbitrarily refuse to properly recognize the University’s nonprofit status and disregard the independent reviews by Deloitte and BKD that were completed at the Department’s request. As a result, to ensure it is treated fairly, the University will reluctantly proceed with litigation in an effort to properly gain recognition as a nonprofit institution for Title IV, HEA purposes. It is unfortunate that the University is forced to pursue this remedy and seek protection against an agency of the United States government; however, the University cannot sit idly by as the Department of Education refuses to recognize the positive impact GCU’s financial model has had on the GCU community, which every other regulatory agency and independent financial expert has recognized. We must instead seek to have an impartial judge review the facts and render a verdict based on the rule of law and the overwhelming evidence that this transaction has greatly benefited GCU’s students, faculty, staff and alumni.
Notwithstanding this disagreement with the Department of Education over GCU’s status as a nonprofit institution for Title IV, HEA purposes, the Department of Education approved GCU’s acquisition of the University and issued a provisional program participation agreement that allows the University to continue to participate in Title IV, HEA programs through September 30, 2022. The Department’s approval of the transaction is important because it means that there will be no disruption to students and the University will continue to operate as it has for many years, both before and after the transaction.
In closing, thank you to all of the students, faculty, staff and alumni at GCU who have poured your heart and soul into such great accomplishments. You are all doing God’s work and the future is bright for this University. We will navigate this chapter of our history together and become stronger and more resilient in the process. We look forward to the continued accomplishments of our students, faculty, staff and alumni as we move forward.