Growing Trend of For-Profit Colleges Becoming Nonprofits?

I recently was looking for some examples of nonprofit colleges and universities becoming for-profits and noticed what appears to an interesting trend – for-profit colleges and universities becoming nonprofits.  The most prominent example is Grand Canyon University (GCU), which informed shareholders late last year that it may buy them out and convert to a nonprofit college according to a Bloomberg News article.  GCU, which has both a physical campus in Arizona and a strong online presence, is currently worth over $2 billion (based on the market value of its publicy traded parent company).  Its stated reason for considering this change is the stigma associated with being a for-profit, which apparently affects its relationships not only with prospective students but also with other institutions of higher education and regulators.  For example, it claims that some schools have refused to play sports against them even though it is an NCAA Division I school.  One particularly interesting aspect of its history – it was a nonprofit until 2004, when financial struggles led it to become a for-profit entity, while still apparently maintaining its reputation as a strong Christian institution.

GCU is the most prominent example, but not the only one.  The Milwaukee-Wisconsin Journal Sentinal recently reported that Herzing University, described as a for-profit career college, has just completed a conversion to nonprofit status.  And a July 2014 Inside Higher Ed article noted four other for-profit to nonprofit conversions, although all of those involved relative small institutions that were closely held and so presumable were easier to convert.  According to the article, unidentified sources said another four such institutions were considering such a move.  The most common mechanism is for the institution to be sold to an existing nonprofit, with valuation and financing being the key issues in such a scenario.  And of course there are numerous accreditation, property ownership, and other other regulatory and legal issues to address.  Given this complexity, it is not surprising that according to a recent Arizona Republic article GCU officials only give themselves a 50 percent chance of successfully converting GCU to nonprofit status.  It also not surprising that the same article highlights how much GCU’s current executives would take home (tens of millions of dollars) if the conversion happens.

Lloyd Mayer