The U.S. 9th Circuit Court of Appeals recently ruled against the U.S. Department of Education's denial of nonprofit status to Grand Canyon University (GCU), a leading Christian higher education institution.
In a unanimous 3-0 decision, the panel directed the department to reassess GCU's status under the appropriate legal standards specified in the Higher Education Act (HEA). The court found that the department exceeded its authority by employing an incorrect standard, relying on IRS regulations that extended beyond the HEA's requirements.
“The Department invoked the wrong legal standards by relying on IRS regulations that impose requirements that go well beyond the HEA's requirement and instead implement a portion of [law] that has no counterpart in the definition of the term ‘nonprofit’ set forth in HEA,” the ruling details.
The court clarified that the HEA standards required a determination of GCU's nonprofit status based on ownership and operation by a nonprofit corporation and compliance with the no-inurement requirement. The panel reversed the district court's judgment and remanded the case with instructions to dismiss the Department's denials and reconsider further proceedings.
GCU's Board of Trustees decided in 2018 to revert the university to a nonprofit model, similar to its original structure. The Arizona government, the IRS, the Arizona Board for Private Postsecondary Education, and the Higher Learning Commission recognized this move. However, the U.S. Department of Education refused to acknowledge the nonprofit status in 2019 due to concerns about revenues benefiting a former for-profit owner.
GCU claims that the Department of Education’s stance is unprecedented. In light of the court's decision, the university stated that the ruling is "a long-awaited correction" and expressed hope for swift affirmation of its nonprofit status.
The court instructed the department to employ the standard private inurement test, already approved by the IRS, which evaluates whether a nonprofit pays fair market value for goods and services.
GCU mentioned that several independent valuation studies had confirmed its compliance with fair market value standards. This decision comes after a similar ruling in a case involving the Federal Trade Commission, where an Arizona district court dismissed claims against GCU due to the FTC's lack of authority over nonprofits.
Achieving nonprofit status allows GCU to access federal resources and research grants, vital given its substantial Hispanic student demographic.
GCU has managed to maintain stable tuition rates for 17 years while expanding student enrollment, enhancing academic offerings, and investing in its infrastructure. Notably, last November, GCU faced a $37.7 million fine from the department, accusing the university of misleading doctoral students about program costs.
This fine considerably exceeds penalties imposed on other institutions like Penn State and Michigan State, and GCU is currently appealing this penalty.
