Federal appeals court rules Education Department wrongly denied Christian school’s nonprofit status

A federal appeals court has ruled the Department of Education improperly rejected Grand Canyon University’s switch from for-profit to nonprofit status, granting a key point in the Christian school’s appeal of a record fine.

A unanimous three-judge panel of the 9th U.S. Circuit Court of Appeals issued the decision Friday. It overturned a 2022 summary judgment by a lower court because the department failed to apply a relevant federal law to the Phoenix campus.

The Education Department denied the nonprofit status in 2019, arguing it would enrich the for-profit company that previously owned GCU, even though the IRS and state officials had already recognized the change.

“Because the department failed to apply the correct legal standards, its decisions must be set aside,” said the panel, which consisted of two Trump appointees and one Biden appointee.

The ruling precedes a hearing on last year’s $37.7 million fine, which penalized GCU as a predatory for-profit institution that misled students about tuition costs. University officials said they were hopeful the fine would be voided by the incoming Trump administration.

“Unfortunately, as we have seen, it does make a difference who the president is,” GCU President Brian Mueller said. “Under President Biden, federal agencies have tried to greatly expand their administrative and punitive authority.”

Mr. Mueller added that he supports “stripping back the [Education] Department’s scope to its primary purpose of administering Title IV financial aid and doing it really well.”

The nation’s largest Christian college, GCU has refused to pay the fine as it resists five investigations from the Biden-Harris administration into its financial practices.

In an email, an Education Department spokesman declined to say whether it would continue to pursue the fine against GCU.

“We kindly refer you to either the Trump campaign or the Trump transition team,” the email read.

The Trump campaign did not respond to an email seeking comment.

During his recent campaign, President-elect Donald Trump repeatedly pledged to abolish the Education Department.

“I say it all the time, I’m dying to get back to do this. We will ultimately eliminate the federal Department of Education,” Mr. Trump said during a September rally in Wisconsin.

While this promise delighted critics of government overreach, some analysts said Monday that Mr. Trump probably can’t keep it, even if he ends the GCU fine and other Biden administration efforts to make universities cover unpaid student loans.

“I think it’s very unlikely that they’ll completely shut down the department,” said Jon Valant, director of the Brown Center on Education Policy at the Brookings Institution. “The Trump administration would need Congress to go along with that idea, and they’d likely have no support from Democrats and a good amount of opposition from congressional Republicans.”

Founded in 1949, Grand Canyon became a for-profit campus in 2004 as it struggled to pay its bills. Enrollment and revenues jumped after the change, leading to the school’s 2019 application to revert to nonprofit status.

In its proposed fine last November, the Education Department said tuition ran $10,000 to $12,000 higher than the advertised $40,000 to $49,000 for some 78% of doctoral graduates GCU required to take “continuation courses” — a common requirement in universities for students writing dissertations after finishing their coursework.

Building off that fine, the Federal Trade Commission sued GCU in December. That complaint accuses the school of using misleading advertising and telemarketing to falsely present itself as nonprofit and suggest programs cost less than they did.

At the end of December, GCU received word that the Department of Veterans Affairs had launched a separate financial audit. In March, however, the VA’s Arizona State Approving Agency issued a report that found “no substantiated findings” of wrongdoing in their review of GCU records.

School administrators claimed the investigations were retaliation for an unsuccessful lawsuit they filed in February 2021, challenging the nonprofit rejection. They pointed to materials on the GCU website advising applicants that tuition may run higher than advertised, depending on how long it takes them to complete their treatises.

The school expects a hearing on its appeal of the fine early next year.

Grand Canyon hired Mr. Mueller, a former leader at the for-profit University of Phoenix, as president in 2008.

He said the school has spent nearly $10 million over the past year on legal fees resisting the investigations, and noted that the refusal to recognize GCU’s nonprofit status caused students to receive “significantly less money” in federal COVID-19 relief and from federal aid programs for Hispanic students.

“From listening to President Trump’s public comments, we look forward to an administration that, rather than using federal agencies to harass universities to which they are ideologically opposed, will reduce bureaucracy while applying regulations fairly and equitably,” Mr. Mueller added in an email.