The Federal Trade Commission has filed a lawsuit against Grand Canyon University for allegedly misleading prospective doctoral students.
A federal appeals court ruled on Friday that the U.S. Education Department used the wrong legal standard when it denied Grand Canyon University’s application for nonprofit status in 2019.
The decision by the three-judge panel of the U.S. Court of Appeals for the Ninth Circuit overturned a lower court’s ruling in 2022, which had upheld the Education Department’s rejection of the Arizona Christian university’s request to be recognized as a private nonprofit institution under Title IV of the Higher Education Act.
Grand Canyon University had transitioned to a for-profit institution in 2004 due to financial difficulties, and it experienced significant growth and financial success as a for-profit entity, especially with a strong online presence. However, following increased regulation by the Obama administration, the university sought to revert to its nonprofit status, which was approved by the Internal Revenue Service and its accreditor.
In 2019, the Education Department determined that the university’s earnings would benefit the previous for-profit company that owned Grand Canyon. This decision, made during the Trump administration, also prohibited the university from marketing itself as a nonprofit to the public.
Grand Canyon University filed a lawsuit against the Education Department in 2021, accusing the Biden administration of orchestrating a campaign against them.
In November 2022, a lower court judge ruled that the Education Department had the authority to determine an institution’s nonprofit status under Title IV and that Grand Canyon had not provided evidence of the agency acting in an arbitrary or capricious manner.
However, the Ninth Circuit panel, consisting of two judges appointed by President Trump and one by President Biden, disagreed with the lower court’s decision. They found that the Education Department had incorrectly applied IRS regulations instead of the Higher Education Act’s requirements in assessing nonprofit institutions.
The panel stated in their decision that the department had failed to apply the private inurement requirement specified in the Higher Education Act, instead using the more restrictive operational test from the IRS. This led to the decisions being overturned.
Grand Canyon University welcomed the appeals court’s ruling, calling it a correction to the department’s unlawful application of standards that denied the university nonprofit status. They expressed hope for a swift affirmation of their nonprofit institution status.
As of Friday, Education Department officials had not provided any comment on the ruling.