Wow, despite the First Amendment, Grand Canyon University, a private religious Christian college gets millions of dollars in Federal government money - $465 million by my caculations - "Grand Canyon ... gets 79 percent of its revenue from federal student financial aid such as student loans"
Grand Canyon University's business model succeeds, but education rankings lag
By Anne Ryman The Republic | azcentral.com Sun Mar 9, 2014 1:19 AM
A camera pans the college grounds. Flashes of purple, the school’s color, burst onto the TV screen. You see students marching in the band, studying in classrooms, cheering wildly at a basketball game. At the end, a student blows a kiss at graduation. The campus is like a supermodel. There are no bad angles.
“Grand Canyon University,” the announcer says as the 30-second TV commercial draws to a close. “The quality of a private, Christian education. The affordability of a state university.”
This is how the school defines itself 10 years after a group of investors bought the struggling Christian university in Phoenix and turned it into a for-profit company that is now unlike any other in the nation.
A months-long examination of Grand Canyon’s residential campus by The Arizona Republic found a business model praised by financial analysts at a time when the for-profit sector struggles with declining enrollments. The campus has smaller class sizes, on average, than the state universities, as well as generous merit scholarships that sharply reduce the cost compared with traditional private schools.
Enrollment is booming with about 59,700 students. Most of them are online, but the university also has a growing residential campus with new facilities that rival those of the best schools.
But there are trade-offs in quality, The Republic found.
The school’s academic rankings are not close to its business achievements. With the exception of nursing, none of Grand Canyon’s programs are ranked by U.S. News & World Report, which is often used as a reference guide in college searches.
The ground campus also lags behind on two key indicators of college success: Its six-year graduation rates and freshman-retention rates are below the national average for public and non-profit private schools.
Full-time faculty members make half the average salaries of some of the competing private universities and average nearly $20,000 to $40,000 less annually than their counterparts at Arizona’s state universities.
Yet Grand Canyon, which gets 79 percent of its revenue from federal student financial aid such as student loans, spent $50 million more on marketing last year than Arizona State University, the nation’s largest public school.
A federal panel investigating for-profit colleges in 2012 criticized Grand Canyon’s aggressive recruiting practices. Two years earlier, the school’s parent company settled a whistle-blower lawsuit for $5.2 million that alleged the university violated a ban on giving recruiters incentives for meeting enrollment targets.
The school’s recent transition to the highest level of NCAA sports also has been controversial. Last year, Pac-12 university presidents wrote a letter to the NCAA, asking the group to reconsider granting for-profit schools like Grand Canyon membership into Division I.
“The incentives for for-profit colleges are not aligned with their students and even less so with their student-athletes,” the presidents wrote. “For-profit responsibility is to their shareholders.”
Grand Canyon President and CEO Brian Mueller believes the company can balance the needs of both students and shareholders. Higher education in general across the country costs too much and requires students to take out too much money in student loans, he said.
“This represents one model that has potential,” he said. “I think there needs to be three or four or five other models people experiment with. This represents one.”
Certainly, all the fuss isn’t hurting the bottom line or deterring students.
Grand Canyon Education Inc.’s revenue was up 17 percent last year to $598 million. Profit increased nearly 28 percent to $88.7 million, or $1.92 per share, and the company paid $56 million in taxes.
Enrollment grew 32 percent at the Phoenix campus with a record 8,200 undergraduate students. By this fall, undergraduate enrollment is expected to reach 10,500. A second campus in Mesa is planned for 2015.
Mueller said the school can’t build dorms fast enough.
That would have been hard to imagine 10 years ago.
A decade of change
A recent walk across campus reminded Kevin McClean how much Grand Canyon University has changed. He and a colleague could barely get through to the student union on their way to lunch. Students filled the sidewalks.
“Did you ever think we’d see the day we’d have to push our way through crowds of students?” he recalled saying.
McClean is dean of the business college. Twelve years ago, when he was hired as an assistant professor, he rarely saw many students milling around. The low-slung buildings dated to the early 1950s. The roads had potholes.
Two years later, in early 2004, McClean and other faculty members were herded into a lecture hall and given the news. The non-profit university, founded in 1949 and saddled with more than $20 million in debt, had been sold to a group of private investors.
The main investors were Brent and Chris Richardson. The brothers owned a company, Masters Online, that was already providing online services to the school.
Change happened fast. The new owners eliminated traditional faculty tenure, reduced the number of employees and brought in new people. They emphasized online and looked for ways to raise the university’s profile. The university signed a licensing agreement to name the business school after Ken Blanchard, a management expert best known for his book The One Minute Manager.
Brent Richardson, who is still involved as the company’s executive chairman, said the company has invested a lot of money and effort into building a quality university.
“You have to have a good product,” he said. “It would be foolish to skimp in that area.”
A few years after the purchase, the company needed to pay back some of its investors, and officials wanted to expand the residential campus. So in 2008, the company went public on the Nasdaq stock market with a $230 million initial public offering.
The money built a new campus that bears little resemblance to the old one: A 55,000-square-foot recreation center, a 5,000-seat basketball and entertainment arena, seven dorms, a student union with dining facilities and new classroom buildings and lecture halls all were added.
A purple palette permeates the campus at 33rd Avenue and Camelback Road. The amenities are a strong selling point, especially to families from cold climates. Towering palm trees, two heated swimming pools and green lawns make a strong impression.
Experts say it’s rare for a for-profit school to develop a significant residential campus. That, plus the school’s Christian emphasis, makes it unique in the United States, said Kevin Kinser, an associate professor at the University of Albany-State University of New York, who studies non-traditional colleges.
“What they are clearly doing is blurring the line between a non-profit and a for-profit,” said Kinser, who recently toured the campus.
Other schools are taking notice.
Vying with state schools
ASU’s leaders gathered on a Friday morning in February 2013 for their annual presentation to the Arizona Board of Regents.
On the agenda: How to increase enrollment and the number of college graduates. Arizona has for years lagged the national average in the percentage of adults with four-year degrees.
The regents have set graduation goals for all three state universities. ASU’s charge is to graduate 25,000 students a year by 2020, up from 18,000 in 2012.
Then-ASU Provost Betty Phillips noted during the meeting that for-profit schools, like Grand Canyon University, were presenting competition toward reaching that goal. She mentioned Grand Canyon’s generous marketing budget and noted that the school’s retention rates were lower than ASU’s.
“I worry because the students in Arizona, many of them, are not sophisticated enough to know the difference between a place like Grand Canyon and our fine university,” she said.
ASU President Michael Crow has not acknowledged Grand Canyon as a major competitor, but he was involved in the protest of for-profit schools gaining Division I status. He has stated he is opposed to competing in athletics against for-profit universities and is against using athletics as a way to make profits.
Eileen Klein, president of the Arizona Board of Regents, views Grand Canyon as another choice for students and says more choices drive healthy competition among all colleges and universities. She added that the state universities have very different missions from Grand Canyon and have high expectations in terms of student access and affordability.
“We’re beholden to the public in terms of outcomes,” she said.
Grand Canyon, for its part, considers ASU its main in-state competitor. GCU officials tout low class sizes and a small-campus feel as what they consider key advantages over the 76,700-student state school.
Grand Canyon has a larger percentage of smaller classes than all three state universities, according to the most recent federal data: 54 percent of classes had fewer than 20 students and only 7 percent of classes had more than 50 students.
Still, the university trails ASU and the University of Arizona on graduation and retention rates. These two measures of academic progress are receiving increased attention at U.S. colleges as part of the national push to increase college completion.
CEO Mueller said Grand Canyon’s graduation rates date back six years and don’t represent today’s larger, on-campus student body. He predicts graduation and retention rates will rise because the school recently raised its admission standards.
But the state universities also have more programs that are ranked by U.S. News & World Report, a listing that is often viewed as an indicator of excellence.
Mueller views college rankings as generally a disservice to students because some are based on how exclusive a program or university is to get into. Rankings also don’t measure intangibles, he said, like an excellent biology professor who is so popular students clamor to get into his classes.
He said Grand Canyon’s nursing program is “the best in the Southwest.” Students’ pass rates on the national licensing exam for registered nurses are about equal to or above Arizona’s state universities. The school’s teacher education, biology, chemistry and pre-med programs “are as good as any in the Southwest,” Mueller said. However, none of those programs, except nursing, is ranked by U.S. News & World Report. The nursing graduate program is ranked 435th in the country out of 467.
Some of Grand Canyon’s programs are newer, or have been revamped. The business school has a good reputation, Mueller said, but is still growing and not at the level of ASU’s W.P. Carey School of Business, which was ranked the No. 30 Best Grad Business School by U.S. News.
Numerous Grand Canyon students and recent alumni interviewed by The Arizona Republic said they were generally satisfied with their professors and their education. One area that they felt needed improvement was support services such as financial and academic advising. Students said the advisers often changed, making communication difficult and sometimes leading to problems with their bills.
Mueller said the university about a year ago combined the financial and advising roles and raised the salary for those positions.
Grand Canyon uses tuition discounts, also known as scholarships, to bring down the $16,500 annual tuition rate. In Grand Canyon’s 2012 annual report to shareholders, the company mentions that Phoenix-campus students pay $7,800 on average in annual tuition after scholarships “while state universities in Arizona have tuition rates of about $10,000 per year.”
But Klein, the regents president, said it’s important to convey a fair comparison. The state universities also offer scholarships, bringing the average tuition paid by in-state undergraduates to $3,475 — about half the amount paid at GCU.
Students with good grades can get discounts to attend Grand Canyon’s residential campus.
One of those discount offers arrived in a purple envelope in November at Déjà Adams’ Phoenix home.
She opened the silver seal, and confetti spilled onto the floor. Inside, nestled behind tissue paper, was good news. She had been accepted. Even better news followed in the same letter. Her grade-point average meant she was eligible for a dean’s scholarship that would cut her tuition nearly in half.
At the time, Adams was also considering a state university.
“Just getting something up front made me lean toward GCU,” Adams said.
She’ll start her freshman year at Grand Canyon in the fall.
Comparable to others?
Mueller said Grand Canyon competes for students with private, Christian schools such as Azusa Pacific and Pepperdine universities in California and Abilene Christian University and Baylor University in Texas.
The school is well behind these competitors, though, in the areas of graduation and retention rates and faculty salaries, according to the most recent federal data.
Only 8 percent of Grand Canyon’s full-time professors are tenured now that it has discontinued the traditional tenure track. Thirty-six percent of its faculty members have doctoral degrees.
Abilene Christian University in Texas has a similar teaching mission as Grand Canyon. Neither is a research university. At Abilene Christian, full-time faculty salaries are about $15,000 higher, on average, than Grand Canyon’s. Eighty-two percent of full-time faculty members have tenure or are on tenure track, and 97 percent of those have Ph.D. or terminal degrees.
The strategy of using non-tenured faculty saves Grand Canyon money. But education experts say it could make it harder to attract faculty. Mueller, however, points out that 56 percent of the class seats at the residential campus are taught by full-time faculty.
“I would say academically, in terms of the students we admit, the programs we offer, the rigor of our programs, we are very much like Azusa Pacific and Pepperdine and schools like that,” he said.
Peter Appert, a senior research analyst who follows Grand Canyon for Piper Jaffray, calls Grand Canyon’s self-comparison with private schools like Pepperdine an aspirational goal.
“They are definitely a step below that today,” he said. “But that’s what they would look to be compared with.”
Judge Mason, an independent college adviser in Arizona, said the upper-middle-income and upper-income families he works with don’t have Grand Canyon on their radar “at all.” Given the lack of rankings and the for-profit business model, he said, “it’s not a place I would recommend.”
Grand Canyon does beat its key private competitors in price after scholarships.
“In comparison, most private universities have tuition rates between $25,000 and $40,000 per year,” the company states in its 2012 annual report to shareholders.
That statement is not the complete story, though, according to a group that represents private, non-profit colleges. Private-school students on average pay about half the list price, said Harold Hartley III, senior vice president of the Council of Independent Colleges, a Washington, D.C.-based group.
Individual costs vary depending on financial need and academic performance. After scholarships and grants, the average annual net cost is $12,460 at private, non-profit schools this year, according to the College Board, a non-profit group that tracks college pricing.
That figure still makes Grand Canyon less expensive, on average, which is one of the school’s many marketing tools.
Grand Canyon University’s residential campus lags slightly behind the national average for public and private non-profits in two key benchmarks. Statistics are from 2012, the most recent year available for comparison.
Zack Filbrun took a year off after his freshman year at Ohio State University but was eager to continue his education.
In the summer of 2011, he attended a Rock and Worship Road Show, a traveling concert that happened to be co-sponsored by Grand Canyon. A speaker got on stage and started talking about the school. Filbrun liked what he heard.
He enrolled without visiting the campus, arriving three days before the fall semester started. The 23-year-old will graduate this spring with a bachelor’s degree in biology. He wants to become an orthodontist.
From sponsoring Christian rock concerts to buying polished television ads, Grand Canyon spends millions getting its name in front of people. In 2013, the university paid $66 million for advertising or marketing the online and ground campuses, about 11 percent of its revenue. By comparison, ASU spent $16 million last year on advertising and marketing, not quite 1 percent of its revenue.
Besides advertising, the school hires recruiters to bring in students.
Grand Canyon’s approach to recruiting has been both praised for being consumer-friendly and criticized for being too aggressive. The lawsuit that Grand Canyon’s parent company settled for $5.2 million in 2010 alleged the university violated federal regulations by giving recruiters incentives, such as trips to Lake Tahoe and days off, for meeting enrollment targets.
The school’s recruiting practices were spotlighted again in 2012 when a federal committee chaired by Sen. Tom Harkin, D-Iowa, released a report on 30 for-profit companies.
The report noted Grand Canyon’s “aggressive recruiting posture.” Internal documents from the company said recruiters were expected to make 80 to 89 phone calls a day to prospective students. The recruiters were encouraged to create a sense of urgency and “paint a picture of two futures: with a degree and without a degree,” according to the federal report.
Mueller said recruiters aren’t paid based on the number of students they enroll. The university does set minimum expectations. The vast majority exceed expectations, he said, especially for the Phoenix campus.
The school also uses its Christian image to recruit.
The Christian mission is a big draw for a certain segment of students, Mueller said. The alcohol-free campus and lack of fraternity mischief are seen as pluses in the eyes of some parents.
The Christian focus also gives the school a unique niche in the otherwise crowded marketplace of for-profit education, financial analysts say.
The marketing must be working. Grand Canyon’s profits have grown every year since the initial public offering, from $6.7 million in 2008 to $88.7 million last year.
“Grand Canyon has been one of the stars of the for-profit industry,” said Appert, the financial analyst who follows Grand Canyon for Piper Jaffray.
But the school’s financial strategy depends on continued growth.
Looking to future
Mueller started his career as a professor at Concordia University, a private Christian school in Nebraska, and then spent 21 years at the Apollo Group, the parent company of the University of Phoenix. He was hired in 2008 to help guide Grand Canyon through its initial public offering; financial analysts view the 60-year-old as a key strategic thinker who helped diversify beyond online.
Mueller also is a hands-on leader. He regularly zips around campus in a golf cart, conducting several personal tours each week, eager to show off the revived, 133-acre campus.
On such a tour with Arizona Republic journalists, he stopped inside the recreation center and chatted with Dan Majerle, the former Phoenix Suns player and assistant coach who now coaches men’s basketball at Grand Canyon. The Valley sports icon was a key hire as the school ramps up its sports profile and is featured in media ads.
Attracting more students is the key to the school’s financial success, experts say.
“They need to keep enrolling more students to keep investors satisfied,” said Kinser, the associate professor who studies private colleges.
To that end, Grand Canyon plans to build a second campus on 100 acres in Mesa’s Eastmark residential and commercial development. The $170 million investment is expected to draw about 2,500 students in fall 2015.
The Phoenix campus is expected to serve 15,000 to 17,000 students in four years. The basketball arena will be expanded. New academic majors, such as engineering and computer sciences, are planned.
Eventually, enrollment could hit 25,000 to 27,000 between the two campuses. That would make Grand Canyon about as large as Northern Arizona University is today.
And it’s possible the university, once facing a bleak future a decade ago, could build similar residential campuses in other cities and states. Tucson, Las Vegas and Albuquerque are possibilities.
Still, Mueller said he is determined to keep the private, small-campus feel and affordable tuition rates.
How well he and the school are able to do that may determine how Grand Canyon defines itself in another 10 years.
Reach the reporter at 602-444-8072 or firstname.lastname@example.org.
Then and now: Grand Canyon University
Residential undergraduate enrollment: About 1,000.
Full-time staff: About 100.
Number of colleges: 4.
Finances: More than $20 million in debt.
Ground enrollment: 8,200.
Full-time staff: 3,130 plus another 4,435 in part-time staff.
Number of colleges: 7.
Finances: $88.7 million in profit in 2013.
$400 million: In the last five years, the university has spent about $400 million in capital expenditures, including a new basketball and entertainment arena, classrooms and laboratories. Residence halls, athletic facilities and parking garages also have been added at the Phoenix campus at Camelback Road and 33rd Avenue.
1: Number of ranked programs Grand Canyon University offers as determined by U.S. News and World Report. GCU’s nursing program currently ranks 435th in the nation.
University acceptance rates: Enrollment is booming at Grand Canyon University, which has a significantly lower acceptance rate for student applications than any of the state’s three public universities.