FTC sues Grand Canyon Education, alleging 'deceptive and abusive' marketing practices

By Bill Peters

University denies allegations and accuses Biden administration of 'weaponizing federal government agencies'

The Federal Trade Commission on Wednesday sued education-services company Grand Canyon Education Inc., which does much of its work with Phoenix-based Grand Canyon University, accusing the two entities of deceiving prospective students about program costs and "deceptively" marketing the school as a nonprofit.

The FTC also named the university and its president, Brian Mueller, who is also chief executive of Grand Canyon Education, in the suit.

The university, which is the nation's largest Christian university, said in a statement late Wednesday that it "categorically denies these unsubstantiated allegations." It accused the Biden administration of "weaponizing federal government agencies in a coordinated effort to target institutions to which they are ideologically opposed."

Shares of Grand Canyon Education (LOPE) slid 6.4% on Thursday.

The stock is still up 25% this year. As of last year, Grand Canyon Education provided education services - including course design and management, faculty training, marketing and student counseling - to 27 U.S. universities, according to its annual report.

In the lawsuit announced Wednesday, the FTC alleged that the company and the university told prospective doctoral students that the total cost of GCU's "accelerated" doctoral programs amounted to the equivalent of 20 courses.

"In reality, the school requires that almost all doctoral students take additional 'continuation courses' that add thousands of dollars in costs," the FTC said in a statement.

The agency also alleged that Grand Canyon University has been run for the profit of Grand Canyon Education and its shareholders and that it pays 60% of its revenue to Grand Canyon Education. Mueller, it said, received bonuses tied to Grand Canyon Education's financials.

The FTC also alleged that GCU used "abusive telemarketing calls" in an effort to increase enrollment by advertising online, asking prospective students to send contact information digitally, and then using that information to "illegally contact people who have specifically requested not to be called."

The agency is asking for steps to prevent future violations, as well as financial and other relief.

The suit from the FTC comes after the U.S. Department of Education in October fined Grand Canyon University $37.7 million, accusing it of lying to thousands of current and former students about the costs of its doctoral programs. The university last month said it was appealing that decision.

"Unfortunately, this continues the negative headlines emanating from Washington, D.C. against this institution," BMO analyst Jeffrey Silber said in a note to clients on Thursday.

The Biden administration has rolled out regulations intended to ensure that a college degree translates into a career, tying federal funding to students' employment outcomes. For-profit colleges - which over the years have been accused of overcharging students and underdelivering on education - have in particular claimed those measures target them unfairly.

Grand Canyon University's nonprofit status has been a matter of debate in and out of court. The university, which went for-profit in 2004 after a deal with investors saved it from bankruptcy, has argued that a 2018 transaction makes it a nonprofit college. However, the Department of Education still classifies it as for-profit, pointing to the university's arrangements with Grand Canyon Education, which is a for-profit company.

"Historically, the [Internal Revenue Service] and states have always been the determining entities in determining nonprofit status," the university said in its statement on Wednesday. "After going through that legal recognition process with those regulators, GCU identified itself as a nonprofit consistent with its new status."

In that statement, the university also said its disclosures about the cost and average number of courses needed "are more robust than other universities and are spelled out in its Degree Program Calculator in large red type, immediately above the total estimated cost for 60 credits."

And it said revenue-sharing agreements with education-service companies are common in higher education, and that "GCU's master services agreement with GCE follows those industry norms, including the 60-40% revenue split the FTC cited." The university also said it did not make cold calls to prospective students, and that its calling practices were the same as those at "thousands" of educational institutions.

In September, the Education Department announced that it had strengthened its so-called gainful employment rule. That rule, it said, would protect students at for-profit and other colleges from career-training programs that "leave graduates with unaffordable loan payments or earnings no better than what someone who did not pursue postsecondary education earns in their state."

At that time, the department also announced a measure to provide students with more details about the costs of postsecondary programs and how much they can expect to earn after finishing them. That measure, the department said, would require prospective students to acknowledge viewing information about possible program risks before enrolling in certificate or graduate programs "whose graduates have been determined to face unaffordable debt levels."

Grand Canyon University currently has a student population of 118,000, a representative for the university said. Of those, 26,000 are on the physical campus and 92,000 are studying online.

-Bill Peters

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

12-28-23 1809ET

Copyright (c) 2023 Dow Jones & Company, Inc.