Dept. of Education wrongfully denied nonprofit status to Christian university, 9th Circuit rules
The U.S. 9th Circuit Court of Appeals has ruled that the U.S. Department of Education unlawfully denied nonprofit status to Grand Canyon University, one of the country's largest Christian higher education institutions.
In a 3-0 decision, the panel instructed the department to revisit GCU's status using the correct legal standard under the Higher Education Act. The department overstepped its authority by using an incorrect standard, the court ruled.
"The Department invoked the wrong legal standards by relying on IRS regulations that impose requirements that go well beyond the HEA's requirement and instead implement a portion of [law] that has no counterpart in the definition of the term 'nonprofit' set forth in HEA," the ruling states.
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"The correct HEA standards required the Department to determine (1) whether GCU was owned and operated by a nonprofit corporation, and (2) whether GCU satisfied the no-inurement requirement. Because the Department failed to apply the correct legal standards, the panel reversed the judgment of the district court, and remanded with instructions to set aside the Department's denials and to remand to the Department for further proceedings."
Founded in 1949, GCU's Board of Trustees voted to return the university to nonprofit status in 2018, much like it operated for most of its history. Although GCU received nonprofit approvals from the Arizona government, the Internal Revenue Service, the Arizona Board for Private Postsecondary Education and the Higher Learning Commission, the U.S. Department of Education refused to recognize the university's lawful nonprofit status in 2019 over concerns about the school's revenue going to a former for-profit owner.
GCU contends that such a move by the Education Department is unprecedented.
In an update, the university said the 9th Circuit decision is "a long-awaited correction" and is "hopeful for a quick affirmation of the university as a nonprofit institution."
"In light of the Ninth Circuit's ruling, the IRS 501(c)(3) tax-exempt status and independent valuations, we are hopeful that the Department will act in good faith and render a quick decision recognizing the university's nonprofit status," the university stated.
The court directed the department to apply the traditional private inurement test, already approved by the IRS, which determines if a nonprofit pays fair market value for goods and services.
GCU stated that multiple independent valuation studies confirmed that the university was paying fair market value for services. The ruling follows a similar decision in a case involving the Federal Trade Commission, where an Arizona district court dismissed claims against GCU, stating the FTC lacked authority over entities not organized for profit.
The nonprofit status grants the university access to federal funds and research grants, especially given its large Hispanic student population, Mueller told Fox News last year.
Without nonprofit classification, GCU had been barred from accessing these resources.
The university states that it has kept tuition frozen for 17 years, an uncommon achievement in higher education, even as it has increased enrollment, expanded academic programs and invested in infrastructure.
GCU was also hit with a $37.7 million fine from the department last November, alleging that the university misled students about the costs of the doctoral program. The fine is significantly larger than other institutions' penalties, such as those issued to Penn State and Michigan State. GCU is appealing the fine.
In an interview with The Christian Post last year, Mueller called the fine "tyranny from federal government agencies" and vowed to stand up "to ensure this type of ideological government overreach and weaponization of federal agencies does not happen to others."
Education Secretary Miguel Cardona threatened to shut down GCU during an April House Appropriations Committee hearing. Cardona suggested that "predatory schools" were preying on first-generation students.
In a statement to CP at the time, Mueller called Cardona's remarks "inflammatory," stating they were "legally and factually incorrect."
"He is either confused, misinformed or does not understand the actions taken by his own agency," Mueller said.
Republican lawmakers, including Rep. Andy Biggs, R-Ariz., voiced concerns over GCU's treatment. Biggs called for a review of the Department's conduct, calling it "biased."
