Grand Canyon University accused of deceptive advertising, illegal telemarketing by FTC

PHOENIX - Grand Canyon University is facing a new legal fight with the federal government. The Federal Trade commission has accused GCU of deceptive advertising and illegal telemarketing.

The federal agency points to a Department of Education report that says GCU misled students about how much its doctoral program costs. The FTC also accused GCU of abusive telemarketing calls to boost enrollment, saying prospects were urged to submit information online and illegally contacted, despite requesting not to be called.

It also says GCU misrepresented itself as a non-profit.

"Now the FTC is coming back after five years, and saying we're gonna sue you for saying you were a non-profit institution for 18 months. Well, what did you want us to do? We were a non-profit institution. To say anything else would've been a lie, so where that comes from is the most absurd thing that I've ever witnessed," said GCU President Brian Mueller.

In a statement, GCU called it another example of the Biden administration weaponizing federal government agencies to target institutions they ideologically oppose, and called the allegation that it operated for profit, "absurd," saying revenue share agreements with third-party education service companies are common in higher education.

GCU is appealing the $37 million fine from the Dept. of Education.

Federal Trade Commission statement

The Federal Trade Commission has filed suit against Grand Canyon Education (GCE), Inc., Grand Canyon University (GCU), and Brian Mueller—the CEO of GCE and president of GCU—for deceiving prospective doctoral students about the cost and course requirements of its doctoral programs and about being a nonprofit, while also engaging in deceptive and abusive telemarketing practices.

In a complaint filed in federal court, the FTC says that GCU and GCE told prospective students that the total cost of GCU’s "accelerated" doctoral programs was equal to the cost of just 20 courses (or 60 credits). In reality, the school requires that almost all doctoral students take additional "continuation courses" that add thousands of dollars in costs. The U.S. Department of Education reported that fewer than 2% of GCU doctoral program graduates completed their program within the cost that GCU advertises, and almost 78% of these students take five or more continuation courses.

The FTC’s complaint also says that, despite operating the school for the profit of GCE and its investors, the defendants deceptively marketed the school as a nonprofit. The FTC alleges that GCU has been operated for the profit of GCE and its stockholders, and pays 60% of its revenue to GCE pursuant to an agreement designating GCE as the exclusive provider for most university-related services. Even though he serves as GCU’s president, Mueller also benefits as both CEO and a stockholder of GCE, and receives bonuses tied to GCE’s performance. 

"Grand Canyon deceived students by holding itself out as a non-profit institution and misrepresenting the costs and number of courses required to earn doctoral degrees," said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. "We will continue to aggressively pursue those who seek to take advantage of students."

The defendants also used abusive telemarketing calls to try to boost enrollment at GCU, according to the complaint. GCE advertised on websites and social media urging prospective students to submit their contact information on digital forms. GCE telemarketers then used the information to illegally contact people who have specifically requested not to be called, as well as people on the National Do Not Call Registry. GCE has also made illegal calls to numbers it purchased from lead generators.  

The FTC says the defendants’ deceptive claims and abusive telemarketing calls violated the FTC Act and the Telemarketing Sales Rule and asks the court to provide redress to consumers and prohibit the institution from further violations of the law.

The Commission vote authorizing the staff to file the complaint was 3-0. The complaint was filed in the U.S. District Court for the District of Arizona.

NOTE: The Commission files a complaint when it has "reason to believe" that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

Full statement from Grand Canyon University

The FTC’s allegations related to GCU and GCE are unfortunately yet another example of the Biden Administration weaponizing federal government agencies in a coordinated effort to target institutions to which they are ideologically opposed. The FTC, U.S. Department of Education and U.S. Department of Veterans Affair announced publicly in October 2021  they would be targeting for-profit institutions and that is exactly what has taken place even though GCU is lawfully recognized as a nonprofit by the IRS, State of Arizona and Higher Learning Commission (HLC). GCU categorically denies these unsubstantiated allegations and will take all measures necessary to refute them. 

Given the major problems that exist in higher education related to high tuition costs, significant student debt, poor student loan default rates, long completion times, etc., it is baffling that the federal government has chosen to target a Christian university that is addressing those issues in very positive ways. No other institution in higher education is facing this level of government scrutiny, which speaks volumes about these agencies’ motivations and agenda.

Specific to the FTC’s four allegations:

1. The FTC allegations about our doctoral program disclosures simply mimic the ridiculous and unfounded accusations already levied by the U.S. Department of Education, which chose to attack GCU even though the university provides more transparency than is legally required. Those allegations have already been refuted twice in federal courts in Young v GCU and are not substantiated by other objective third parties such as our accrediting body, the Higher Learning Commission, which characterized GCU’s doctoral disclosures as "robust and thorough" during its comprehensive review of GCU in 2021. GCU does not make the claims that the DOE and FTC are citing related to disclosures about cost, making very clear in numerous places including our Degree Program Calculator that additional courses are often needed to continue enrollment to complete a dissertation, which is common in higher education doctoral programs. GCU’s disclosures about the cost and average number of additional 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. The federal government agencies apparently believe that our most experienced and advanced students – those pursuing a doctorate – are not capable of reading a simple enrollment agreement.
2. The FTC’s accusation that GCU is operating for the profit and benefit of Grand Canyon Education is equally as absurd. Revenue share agreements with third-party education service companies are common in higher education, and GCU’s master services agreement with GCE follows those industry norms, including the 60-40% revenue split the FTC cited. In fact, GCU receives higher levels of service for that split than many institutions receive. Both the FTC and Department of Education have chosen to disregard the transfer pricing studies and fairness opinions – which the Department of Education requested – of two nationally recognized, highly respected, independent accounting/finance firms that concluded both the purchase price of the transaction and the terms of GCU’s master services agreement with its primary contractor were fair market value and beneficial to GCU. More importantly, GCU now has five years of factual evidence and audited financial statements that make it abundantly clear the nonprofit transaction has greatly benefitted GCU and its students, who are thriving despite these costly actions by the federal government, which will cost the university millions in litigation expense. Regarding GCU President Brian Mueller’s dual role with GCU and GCE – both of which are operated by completely independent governing boards -- such arrangements are permitted under guidelines adopted by HLC. Mueller’s dual role was approved after HLC reviewed the many safeguards in place to prevent a conflict of interest.
3. The FTC’s assertion that GCU has deceptively marketed itself as a nonprofit is perhaps the most laughable accusation. On July 1, 2018, GCU’s nonprofit transaction was completed with the blessing of the IRS, State of Arizona and Higher Learning Commission. Historically, the IRS and states have always been the determining entities in determining nonprofit status. After going through that legal recognition process with those regulators, GCU identified itself as a nonprofit consistent with its new status. The Department of Education waited 18 months before announcing it would take the unprecedented step of disregarding the IRS determination and deciding it would still classify GCU as a for-profit institution for purposes of federal funding. It also stated at that time that GCU could not identify itself as a nonprofit institution based on speculation that students would confuse GCU’s legal nonprofit status with the Department’s so-called "Title IV for-profit status." While we disagreed with that ruling, GCU cooperated until we could make a good faith effort to resolve that dispute, which is ongoing. Through a FOIA request, GCU now knows through an internal Department of Education email that the Department decided to deny GCU’s nonprofit status long before the transaction, yet still waited 18 months before making that decision known to GCU and the public. Now, five years later, the FTC is suing GCU because it identified itself as a nonprofit during those 18 months in good faith and before receiving the first decision from the Department of Education.
4. Finally, the FTC’s claim of "abusive telemarketing calls" completely lacks merit. As a service provider to GCU, GCE does not make cold calls to prospective students, only reaching out to those who have inquired about GCU’s programs or otherwise expressed interest in attending the university. GCU’s practices are not only the same as those used by thousands of institutions in the education industry and elsewhere (either directly or through third-party service providers), but GCE has more safeguards in place, including using an industry-leading telemarketing compliance firm to ensure compliance with the Telephone Consumer Protection Act. This accusation is similar to the doctoral complaint levied by the FTC and DOE in that they are looking at practices that are common among institutions in higher education, yet they are singling out GCU in an effort to impose punitive actions and harm the university. Similarly, a 2022 report by the U.S. Government Accountability Office (GAO) found that 91% of colleges in America have misleading information or understate the net price in their financial aid offers to prospective students. That includes 41% of colleges that do not even provide a net price in their offers to students. Again, even though GCU provides greater levels of transparency than is legally required and is looked at by its peers as a leader in higher education transparency, these government agencies have chosen to single out GCU.

Given the coordinated efforts of these agencies, unprecedented actions they have taken, record fines they are seeking to impose and the defamatory language used in their announcements, it is clear their motivation – as stated in this Goldwater Institute commentary – is that even if they can’t prove their allegations against GCU, they intend for the process and litigation costs to be the punishment.