Grand Canyon University Faces FTC Suit And VA Audit After $37 Million Fine

The Jerry Colangelo Museum at Grand Canyon University is seen at at dusk in Phoenix, on Sept. 20, … [+] 2017. (AP Photo/Matt York, File)

Copyright 2017 The Associated Press. All rights reserved.

The past month has seen Grand Canyon University troubles grow in the wake of a $37.4 million fine from the Department of Education. GCU is now facing a lawsuit from the Federal Trade Commission for alleged deceptive advertising and illegal telemarking practices and a risk-based audit launched by the Department of Veterans Affairs. The actions taken against GCU seem to all stem from the Department of Education’s findings that GCU lied to more than 7,500 students about the cost of its doctoral programs as a way to increase enrollment.

Why Is The Federal Trade Commission Suing Grand Canyon University?

The FTC suit alleges that GCU used deceptive marketing tactics to recruit students into its Ph.D. programs, including misrepresenting the price of those programs. A program’s price is a crucial factor for students deciding where to attend college, and even more so for students heading to graduate school, where funding tends to be more limited and loan amounts can be large. Knowing exactly what you will pay is vitally important.

As Samuel Levine, director of the FTC’s Bureau of Consumer Protection, explained in a press release, “Grand Canyon deceived students by holding itself out as a non-profit institution and misrepresenting the costs and number of courses required to earn doctoral degrees.”

What Does the Federal Trade Commission Claim Grand Canyon University Did Wrong?

The root of both the fine from ED and the FTC suit lies in how GCU advertised prices for its doctoral programs. ED found that GCU advertised prices for its doctoral programs that only 2% of those programs’ graduates actually ended up paying. The rest paid more—significantly more. By the time they completed their degrees, 78% of graduates from these programs had paid $10-12,000 more in total tuition than GCU advertised. The increase in total costs came from “continuation courses”—classes that most students had to take to complete their dissertations, but that GCU failed to make clear in enrollment and financial aid disclosures.

The FTC suit was filed against GCU, Grand Canyon Education, and Brian Mueller, the president of GCU and the chief executive officer of Grand Canyon Education. GCE is a for-profit company that GCU spun out of the university when it attempted to convert from for-profit to non-profit status. In its press release about the suit, the FTC noted that “Even though he serves as GCU’s president, Mueller also benefits as both CEO and a stockholder of GCE, and receives bonuses tied to GCE’s performance.”

Why Is The Department of Education Refusing To Recognize GCU’s Conversion To Non-Profit Status?

In 2021, the Government Accountability Office (GAO) raised concerns that many colleges, including GCU, were pursuing conversion to non-profit status while their former for-profit owner retained significant financial interests in the school. This likely helps explain why even though the IRS and GCU’s accreditor, the Higher Learning Commission, recognized GCU’s conversion to non-profit status in 2018, ED has not. It still treats GCU as a for-profit school, which means the college is subject to stricter oversight.

The refusal to recognize GCU’s conversion to non-profit status was made under then-Education Secretary Betsy DeVos. In its rejection letter, ED stated that it believed the main purpose of the conversion was to “drive shareholder value for GCE, with GCU as its captive client—potentially in perpetuity.” GCU sued the Department over its decision and lost the case in late 2022.

GCU has pointed to the approval of the IRS and HLC as evidence that its conversion to non-profit status should be recognized by ED, but these decisions do not bind ED. It’s worth noting that HLC also accredits the for-profit University of Phoenix, which faced a similar suit from the FTC based on its advertising practices. Phoenix eventually settled the case for $191 million.

Why Is The Veterans’ Administration Auditing GCU?

The latest challenge for GCU, the VA audit, seems to be the result of the risk-based approach the VA takes in deciding when and whether to audit institutions that enroll veterans who are using GI Bill funds to pay for college. The agency views certain triggering events, such as fines and lawsuits from other state or federal agencies, as an indicator that a college is more likely to be engaged in problematic behavior and should face stricter scrutiny.

Failing a VA audit can result in veteran students no longer being able to use their GI Bill education benefits at the school, although this level of sanction is rare.

In a press release, GCU suggested the VA audit is baseless and said it will appeal the fine from ED and vigorously contest the FTC suit. GCU has also issued multiple statements implying it is being targeted by the federal government because it is a Christian university.

GCU has pledged to take its case all the way to the Supreme Court if necessary.

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