For-profits converting to nonprofits to escape government scrutiny?

According to Romantic, Grand Canyon is unique in the for-profit industry in that it has a traditional university campus, including Division I athletics, theater, dance, debate, student government, intramurals, 11 residence halls for students – similar characteristics found at traditional public universities.

“As such, our competition is primarily state universities and other private Christian universities. Being a for-profit puts us at a distinct disadvantage with those schools because we pay in the 40 percent tax bracket while those institutions do not pay taxes. Further, GCU acts much like a nonprofit in that, since we became a publicly traded company in 2008, more than 100 percent of our after-tax profits have been re-invested back into the university.”

Romantic noted that many nonprofits actually make a profit; they just re-invest back into the institution. Grand Canyon also has never paid dividends to our shareholders. Instead, they receive a return on their investment as GCU’s stock price has risen significantly since 2008 (it opened at $12 and is now in the mid-$40s).

“GCU was a nonprofit from 1949 to 2004, at which time it was about $20 million in debt and about to close its doors. Without a large donor base to turn to, the university decided to take on an investor and become a for-profit school in order to keep from closing. From 2004-08, the university worked on getting its financial house in order, and in 2008 went to the public markets in order raise funds to help the university grow.”

That infusion of capital helped GCU grow from less than 1,000 students on its ground campus to 11,000 just six years later, and from 100 acres to 240, he noted. “We’re expecting 15,000 traditional ground students in the fall of 2015 and project to reach 25,000 within 3 to 4 years. During that same time frame, online enrollment has jumped from about 12,000 to 55,000.

Today, GCU is in a very strong financial position, emphasized Romantic, and there is no need to go to public markets for additional capital; meaning that the University was able to consider the possibility of reverting back to its historical nonprofit status.

“That decision has nothing to do with impending government regulations on the for-profit industry. Our president, Brian Mueller, has stated publicly that he understands the need for regulations. However, the regulations should be applied unilaterally to both nonprofit and for-profit institutions. GCU is in good standing with all of the new federal regulations, even at the more stringent level they were first proposed, so those will have no effect on us moving forward.”