Story by Adam Kissel
It is rare to see a university publicly complain about regulatory harassment, but Grand Canyon University has good reasons to do so.
One of the largest universities in the country, GCU has 25,800 students in person and 92,000 online. It’s a Christian university, but in the eyes of intolerant federal regulators, its brief period as a for-profit university is GCU’s unforgivable sin—one that poses an existential threat to the university. In fact, the U.S. Department of Education has just announced a whopping $38 million fine that GCU is credibly disputing.
Grand Canyon University was a nonprofit institution from 1949 to 2004, then saved itself from possible bankruptcy by converting to for-profit status until 2018, when it returned to nonprofit status. Well, everyone accepted GCU’s return to nonprofit status except the U.S. Department of Education, which has been on a long-term vendetta against profit in education and has preferred to indulge its socialist tendencies.
While this vendetta may have earlier roots, it flourished under the Obama administration. One example was the “borrower defense” regulations that insulated students from having to repay their federal loans under certain conditions. The administration changed the definition of actionable fraud and made it easier for borrowers to sue their schools. The Department of Education was glad to use these rules to put for-profit institutions out of business.
Another example was the “gainful employment” regulations that applied debt-to-income ratios that would put many for-profit educational institutions, but almost no nonprofits, out of business. The idea was that for-profit programs had to prove their financial worth, while almost no nonprofits had to do so.
The Trump administration reversed or rescinded the Obama rules, but the Biden administration has brought them back. The new borrower defense rules, for instance, dramatically expand the kinds of statements or omissions that the department will inevitably use to punish and shut down for-profit colleges.
The department’s sweeping, unlawful regulation of for-profit institutions’ third-party education servicers, which are organizations external to a college that provide it with various services, is the latest example. These new rules go far beyond the definition in the relevant law, which is limited to financial aid servicers, and instead define such servicers as including those that develop academic courses.
It is easy to see why no nonprofit, like Grand Canyon University, wants to be mistaken for a for-profit.
It didn’t matter to the Department of Education that the Internal Revenue Service recognized that Grand Canyon University is once again a nonprofit. Not only the IRS, but also GCU’s accreditor, its state authorizer in Arizona, and even the NCAA recognized that GCU had returned to its nonprofit roots. None of that was acceptable to the Department of Education, which is congenitally allergic to market-based profits.
In the Grand Canyon University situation, the department is apparently relying on its own unique, lengthy definition of “nonprofit” in its own regulations (34 C.F.R. 600.2). An agency like the Department of Education, however, is poorly positioned to make such judgments about what qualifies as a nonprofit.
The department’s legal authority for knowing what a “nonprofit” is comes from the Higher Education Act (specifically, 20 U.S.C. 1003), but the statute merely defines “nonprofit” as an entity “operated by one or more nonprofit corporations or associations, no part of the net earnings of which inures, or may lawfully inure, to the benefit of any private shareholder or individual.”
The department, as it has often done, has added multiple layers of analysis on top of the statute, twisting its language in order to make its own rules.
As the Higher Education Act goes through revisions and a potential reauthorization, Congress should, as often as possible, prohibit the secretary of education from overreaching and regulating beyond the limits of the statute.
As mentioned above, the “gainful employment” regulation throws hundreds of provisions on top of the mere words “gainful employment” in the law. The “borrower defense” part of the statute empowers the secretary of education to identify borrowers’ defenses to repayment of student loans, but the new borrower defense rules extend far beyond the statute. The new “third-party servicer” rules twist the statutory definition of such servicers beyond recognition.
And in this situation, “nonprofit” is not what the IRS decides it means, but what the Department of Education wants it to mean. The Higher Education Act should simply direct the Department of Education’s definition to align with the IRS’. Otherwise, universities like Grand Canyon University will be in the logically untenable position of being a nonprofit in the eyes of all the world except the U.S. Department of Education.
A lot is at stake in correctly designating Grand Canyon University as a nonprofit. Not only is for-profit status a scarlet letter in the eyes of the department, but that status interferes with eligibility for grants that would help GCU students. Notably, GCU would likely qualify as a “Hispanic-Serving Institution” if the department would acknowledge that GCU is a nonprofit. This status would likely yield millions of dollars that GCU could use to create programs to serve GCU’s students.
Having hit a wall at the department, Grand Canyon University has seen no choice but to sue for its identity to be acknowledged. According to a recent Fox News story, the next hearing in the case will take place on Dec. 5.
Meanwhile, as Grand Canyon University has described in detail, standing up against the department’s bullying has only led to more bullying. Other agencies have piled on. According to GCU, the Federal Trade Commission and the Department of Veterans Affairs are “coordinating efforts” with the Department of Education to “target GCU” with investigations and fines for legitimate activity and on issues where other institutions in a similar situation have been left alone.
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All signs are that much, if not all, of these federal actions are intended to punish Grand Canyon University for daring to stand up for itself. Knowing how far into bias and outright lying so many federal agencies have fallen in recent years, GCU’s account of abuse is credible and compelling.
All of this ill treatment is fruit of a poisoned tree. The U.S. Department of Education’s hatred of market-based profits has tainted the evaluation of so-called evidence that federal agencies have been using against Grand Canyon University.