GCU considers return to nonprofit status

Education | 29 Oct, 2014 | AZ Business Magazine

Grand Canyon University announced Wednesday that its Board of Directors has formed a committee of independent directors to explore strategic alternatives to its investment-based business model, including a return to the nonprofit status it held from 1949 to 2004. In particular, the Board chose to form the committee after the university’s management expressed a desire to explore the possibility of effecting a conversion of the university to a non-profit entity.

Brian Mueller, president and CEO of GCU, issued the following statement regarding that decision:

“As a management team, we have decided to look into the possibility of returning the university to its historical non-profit status because we believe it may be in the best long-term interest of our students and our university, as well as our stockholders.

“Whether or not this process is successful – and there is a great deal of legal and financial due diligence that must be conducted to determine if it could be possible – the growth and upward trajectory of the university will continue. The financial model of the institution has produced high-quality, low-cost private Christian higher education and we have found there is no end to the demand for this product. This process will not change the university’s operations or future plans. The university will continue to invest in its ground campus with plans to grow enrollment to 25,000 students. It will continue to invest in its growing online student body. Its academic and operational plans will remain the same. Its partnerships with the city of Phoenix – the Neighborhood Safety Initiative, a drowning prevention program, graffiti abatement, the mentorship and tutoring of high school students – will continue. And extensive community outreach efforts and servant leadership will continue to be a hallmark of the university.

Why the change

“To fully understand why we are seeking to pursue this change, you must look at Grand Canyon’s history. In 2004, after 55 years as a small non-profit private university, GCU was $20 million in debt and about to close its doors. Without a large donor base to turn to or the ability to rely on tax dollars, the university remained afloat by becoming a for-profit university, securing investor funding and adding an online component to its academic offerings.

“During the next four years, GCU improved its financial position, but in order to grow out the campus and ensure long-term stability, it went to the public markets in 2008 for an infusion of capital to invest into the university. As a result of those investments, GCU today has a strong hybrid campus model that has enabled the school to freeze campus tuition for six straight years, grow enrollment on the ground campus from less than 1,000 to nearly 11,000 in just six years, and increase online enrollment to 55,000.

“GCU experienced this remarkable success even as the for-profit sector of higher education hit a steep decline. Since 2010, 12 of the top 13 for-profit educational institutions in the country have had significant drops in enrollment and closed parts of their operations. The one exception, of course, has been Grand Canyon University.

“We do not have a philosophical issue with having a for-profit status and having investors. However, the stigma surrounding the for-profit industry – some of which is deserved, and some not – is real and it is not improving. And no matter what GCU does to separate itself, its detractors continue to try to use this stigma to detract from GCU’s success. Some of those in the higher education community who have been impacted by our success have questioned our motives. Fortunately, this has had no impact on the university’s growth or perception to this point.

“GCU looks and acts like a traditional private university or state university in almost every way. Since becoming a publicly traded company in 2008, more than 100 percent of its after-tax profits have been reinvested back into the university. In addition, none of the federal government’s new regulations aimed at curbing for-profit schools will materially affect GCU, as it surpasses those metrics in every way while also having cohort default rates well below industry standards and those of many of its competitors.

“Grand Canyon is truly unique – an industry of one, if you will. No other university has used a publicly traded for-profit business model to build out its ground campus and develop all of the trappings of a traditional university, including music, dance, theater, debate, intramural sports and a Division I athletic program. Yet, with a stagnant stock price and growing negatives associated with the for-profit industry, we believe it is the right time to consider an alternative to that model if it could be done in a way that would provide shareholders a fair return on their investment while also ensuring the long-term stability and legacy of the institution.”

Academic quality to remain the top priority

“Like any university, GCU should be judged by the outcomes its graduates produce and its commitment to the community in which it exists, not simply by its tax status. Among those outcomes for traditional students.”

n  GCU’s nursing graduates have a first-time pass rate of 94 percent on professional licensure exams over the last three years (the national average was 71 percent in 2013);

n  Teaching graduates also pass their professional knowledge exams at more than 90 percent and had a 100 percent placement rate for 2014 spring graduates seeking employment in education;

• GCU’s pre-med students get accepted into medical schools at a 75 percent rate (the national average is 42 percent);

• Nearly 90 percent of its Colangelo College of Business students are employed within six months of graduation;

• GCU is adding to its over-160 academic programs to include computer science, information technology and engineering; and

• GCU is involved in more than 120 service projects that are making huge differences in its community.

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