For-profit Grand Canyon University mulls a switch to non-profit status

CEO cites 'stigma' of for-profit education as one reason for a change

For-profit Grand Canyon University (GCU) is considering a return to non-profit status—citing the stigma around for-profit schools as one reason for a potential change, the Arizona Republic reports.

GCU has gained notoriety in recent years for investments in its residential campus, a competitive NCAA Division I athletics programs, and strong financial performance compared with other for-profit schools. The majority of its approximately 68,000 students attend online, but the school increasingly sees itself as a competitor to traditional colleges, says CEO Brian Mueller.

"We're competing with state universities in Arizona and private universities in California that have a not-for-profit advantage," he says. Mueller adds that the stigma of being a for-profit—deservedly or not—is a competitive disadvantage in the eyes of the public.

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Investors could benefit

Financially, there are advantages to being a non-profit as well. The school would save $85 million per year in taxes, for instance. Furthermore, a conversion would simplify applications for things like research grants and public subsidies.

However, Mueller was quick to note that—for the time being—GCU is still a private company and any change in status would have to "work for our investors." The company has nearly $2 billion in outstanding shares, and buying out shareholders would require at least a 20% premium, says Trace Urdan, a senior analyst with Wells Fargo Securities.

Whether or not GCU could find a buyer and obtain regulatory approval for such a deal remains an open question. The school says it has been considering the move for months and has formed a committee of independent directors (formed by its board) to make a final decision.

A challenging market

Regardless of how GCU proceeds, the fact that it is even considering a change is a reflection of the challenging environment for-profits now face. Mueller notes that the recession changed the higher-education landscape, increasing investments by traditional institutions in the adult market. As a result, he says "we have seen for-profit, publicly traded institutions rapidly decline in enrollment and valuation."

GCU has not faced the same criticisms around quality and cost that have plagued many other for-profits in recent years. However, it would find itself below the national average for six-year graduation rates and freshman retention if it converted to non-profit status.

Urdan says the announcement has many people "hopeful, but confused," but adds that "my guess is they know more than they are sharing" (Hansen/Ryman, Arizona Republic, 10/30).

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