Christian University Wins Appeal in Fight for Nonprofit Status

The Jerry Colangelo Museum at Grand Canyon University in Phoenix on Sept. 20, 2017. Matt York/AP Photo

A federal appeals court has ruled that the U.S. Education Department wrongly denied nonprofit status to Grand Canyon University (GCU), one of the nation’s largest Christian institutions of higher learning.

In a unanimous decision, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit on Nov. 8 found that the Education Department had used the wrong legal standard when it denied GCU’s nonprofit status in 2019, shortly after the Phoenix-based university restructured to return to its nonprofit roots.

Founded in 1949 as a nonprofit institution, GCU converted to a for-profit model in 2004 while on the brink of bankruptcy. As a for-profit, GCU thrived financially and saw substantial growth in online enrollment. However, in the years of increased regulatory scrutiny of for-profit colleges under the Obama administration, GCU sought to revert to a nonprofit status.

While both the state of Arizona and the IRS approved the change, the Education Department denied GCU’s petition to become a nonprofit, arguing that the university’s earnings would still benefit its former for-profit owner.

That 2019 decision by then-Education Secretary Betsy DeVos also prohibited GCU from marketing itself as a nonprofit.

In October 2023, GCU filed a lawsuit challenging the Education Department’s decision not to recognize its nonprofit status, alleging that it had been unfairly targeted. Shortly afterward, the Education Department levied a $37.7 million fine against GCU for allegedly misleading students about the cost of its graduate programs, which the university vehemently denied.

GCU then faced another legal challenge from the Federal Trade Commission (FTC), which accused the school of misleading prospective students about the cost of its doctoral programs and nonprofit status. The FTC cited the Education Department’s analysis as one piece of evidence backing its accusations.

During this period, Education Secretary Miguel Cardona introduced a new set of “gainful employment” rules aimed at penalizing for-profit colleges that leave students too deeply in debt relative to their earnings to afford to repay. The rules use metrics such as whether at least half of a college program’s graduates earn more than those with a high school diploma in their state.

“When GCU’s Board of Trustees decided to return the university to its historical status as a nonprofit institution in 2018, it did not envision years of hard-fought litigation against federal agencies,” GCU spokesperson Bob Romantic said in a statement in response to the Nov. 8 ruling.

In the opinion penned by Judge Daniel Collins, the panel determined that instead of relying on the Higher Education Act’s requirements for assessing nonprofit institutions, as it should have, the Education Department used more restrictive IRS regulations that focus on whether the university’s primary activities and revenue streams primarily benefited private interests.

“Because the department failed to apply the correct legal standards, its decisions must be set aside,” Collins wrote.

GCU officials celebrated the ruling, expressing hope that its nonprofit status would soon be recognized officially.

Meanwhile, officials at Grand Canyon Education, the for-profit company that previously owned GCU, said they are optimistic that the upcoming Trump administration would bring a more supportive regulatory environment to the industry.

“There are a lot of rules being discussed for future implementation in higher education, they are not going to be helpful to students, and they are not going to be helpful to the economy,” Brian Mueller, Grand Canyon Education chairman and CEO and president of GCU, said during an earnings call on Nov. 7.

Mueller specifically pointed to the new gainful employment rules, describing them as “so counterproductive to what we are doing here.”

“I believe that we’re going to have a voice in what’s going to happen in this next administration, in terms of what the future of higher education should be,” he told investors.

“It’s going to be just the opposite in this administration, and we want to be a very active voice in all that, making sure that the creativity that institutions like us bring to the university landscape is something that’s going to be appreciated and encouraged, rather than—in crazy ways—restricted.”