Grand Canyon Education, Inc. _______________________________ Introduction Grand Canyon Education, Inc. (“Grand Canyon”) was created as the result of the purchase of a small religious college in 2003, and now offers primarily online 4-year and graduate degrees. Like many for-profit education companies, Grand Canyon has experienced steady growth in student enrollment, Federal funds collected and profit realized in recent years. While the company has relatively low rates of student loan defaults, Grand Canyon Bachelor’s students withdraw at a higher rate than many others the committee examined. In many ways similar to both Apollo and Bridgepoint, the company offers relatively few student services and provides no career planning assistance to its students. The proportion of the company’s students who default is far lower than the sector average and the company does not appear to focus on putting former students in deferment and forbearance instead of providing them with the means to repay their loans. Company Overview Grand Canyon Education, Inc. is a publicly traded, for-profit education company based in Phoenix, AZ. Grand Canyon Education, Inc. was formed in 2003 in order to acquire the assets of Grand Canyon University, a private, religious, non-profit college, founded in 1949. The university was acquired and converted into a for-profit education company in 2004 and went public on the NASDAQ stock exchange in 2008. In its initial public offering (IPO), the company raised about $230 million.1925 Grand Canyon offers Doctoral, Master’s, and Bachelor’s degrees in the fields of business administration, education, health care administration, nursing, and public administration, among other subjects. While Grand Canyon operates a physical campus in Phoenix, the vast majority of its students are enrolled in online programs. Approximately 89 percent of Grand Canyon students are enrolled online.1926 Grand Canyon plans on growing its ground campus to 12,000 students by 2015.1927 Like more than half of the regionally accredited brands the committee examined, Grand Canyon University is regionally accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools (“HLC”). The current chief executive officer (CEO) of Grand Canyon is Brian Mueller. Immediately prior to joining Grand Canyon, Mueller was president and a director of Apollo Group, Inc., operator of the University of Phoenix. He also served in a variety of positions with the University of Phoenix Online, including CEO, chief operating officer, and senior vice president. Under his leadership, online enrollment at the University of Phoenix grew from 3,500 to 340,000. Executive vice president Stan Meyer and Chief Financial Officer Dan Bacchus were also with the Apollo Group prior to joining Grand Canyon. 1925 Angela Gonzales, “Grand Canyon Education Looks to Raise $151M,” Phoenix Business Journal, September 3, 2009, http://www.significantfederation.com/blog/news/grand-canyon-education-looks-to-raise-151m.html (accessed June 14, 2012). 1926 Grand Canyon University, “Grand Canyon Education, Inc. Reports Third Quarter 2011 Results,” Press Release, November 7, 2011, http://investors.gcu.edu (accessed June 14, 2012). 1927 Grand Canyon University, 2011, Q3 Investor Call. 474 Grand Canyon was formed by investor Michael Clifford, who was also involved in the formation of Bridgepoint Education, Inc. Clifford has since been involved in more transactions involving the conversion of Christian non-profit colleges into for-profit educational companies. The conversion of Grand Canyon, a small college with a strong religious mission, into a for-profit company caused consternation among the school’s faculty. The Dean of the Christian Studies department, who was fired in 2005, said that while he had hoped the new managers would pay attention to the core values and mission of the college, he eventually realized, “when it came down to it they were not going to make decisions based on our mission, our values, and our history. They were going to make them for one reason. Profit. Period. So why keep calling yourself Christian?” 1928 The former dean expressed his opinion that the company kept the religious label for strategic marketing purposes. Grand Canyon has grown significantly since its conversion, with enrollment increasing from 4,491 students in the fall of 2004 to 42,300 in the fall of 2010.1929 Enrollment has nearly doubled since the company’s IPO in 2008. Enrollment at Grand Canyon Education, Inc., 2001‐10 45,000 42,300 40,000 35,000 34,200 30,000 25,000 22,000 20,000 15,000 13,415 10,297 10,000 7,969 4,113 3,973 4,491 5,000 3,091 ‐ Fall 2001 Fall 2002 Fall 2003 Fall 2004 Fall 2005 Fall 2006 Fall 2007 Fall 2008 Fall 2009 Fall 2010 The growth in enrollment has led to growth in revenue. Revenue at Grand Canyon has grown more than five-fold from $72.1 million in 2006 to $385.6 million in 2010 and has more than doubled since the company’s 2008 IPO. 1930 1928 Elizabeth Redden, “For-Profit, For-God.” Inside Higher Ed., August 3, 2009 http://www.insidehighered.com/news /2009/08/03/christian (accessed June 14, 2012). 1929 Enrollment is calculated using the Securities and Exchange Commission quarterly or annual filing for the August-October period each year. See Appendix 7. 475 Federal Revenue Nearly all for-profit education companies derive the majority of revenues from Federal financial aid programs. Between 2001 and 2010, the share of title IV Federal financial aid funds flowing to for- profit colleges increased from 12.2 to 24.8 percent and from $5.4 to $32.2 billion.1931 Together, the 30 companies the committee examined derived 79 percent of revenues from title IV Federal financial aid programs in 2010, up from 69 percent in 2006.1932 In 2010, Grand Canyon reported 84.9 percent of revenue came from title IV Federal financial aid programs.1933 However, this amount does not include revenue received from the Departments of Defense and Veterans Affairs education programs.1934 Department of Defense Tuition Assistance and post-9/11 GI bill funds accounted for approximately 2.2 percent of Grand Canyon’s revenue, or $7.3 million.1935 With these funds included, 87.1 percent of Grand Canyon’s total revenue was comprised of Federal education funds.1936 1930 Revenue figures for publicly traded companies are from Securities and Exchange Commission annual 10-K filings. Revenue figures for privately held companies are taken from the company financial statements produced to the committee. See Appendix 18. 1931 “Federal financial aid funds” as used in this report means funds made available through title IV of the Higher Education Act, including subsidized and unsubsidized Stafford loans, Pell grants, PLUS loans and multiple other small loan and grant programs. See 20 USC §1070 et seq. Senate HELP Committee staff analysis of U.S. Department of Education, Federal Student Aid Data Center, Title IV Program Volume Reports by School, http://federalstudentaid.ed.gov/datacenter/programmatic.html, 2000-1 and 2009-10. Figures for 2000-1 calculated using data provided to the committee by the U.S. Department of Education. 1932 Senate HELP Committee staff analysis of Proprietary School 90/10 numerator and denominator figures for each OPEID provided to the U.S. Department of Education pursuant to section 487(d)(4) of the Higher Education Act of 1965. Data for fiscal year 2006 provided to the committee by each company; data for fiscal year 2010 provided by the Department of Education on October 14, 2011. See Appendix 9. 1933 Senate HELP Committee staff analysis of fiscal year 2010 Proprietary School 90/10 numerator and denominator figures for each OPEID provided to the U.S. Department of Education pursuant to section 487(d)(4) of the Higher Education Act of 1965. Data provided by the Department of Education on October 14, 2011. See Appendix 9. 1934 The Ensuring Continued Access to Student Loan Act (ECASLA) increased Stafford loan amounts by up to $2,000 per student. The bill also allowed for-profit education companies to exclude the increased amounts of loan eligibility from the calculation of Federal revenues (the 90/10 calculation) during fiscal years 2009 and 2010. However, ECASLA calculations for Grand Canyon could not be extrapolated from the data the company provided to the committee. 1935 As explained in Appendix 11 and 12, data provided by the Department of Defense and the Department of Veterans Affairs was provided on an award year basis for both 2009-10 and 2010-11. Committee staff calculated the average monthly amount of benefits collected from DOD and VA for each company, and estimated the amount of benefits received during the company’s 2010 fiscal year. Post-9/11 GI bill disbursements for August 1, 2009-July 31, 2010 provided to the committee from the Department of Veterans Affairs on November 5, 2010; post-9/11 GI bill disbursements for August 1, 2009-June 15, 2011 provided to the committee from the Senate Committee on Veterans’ Affairs via the Department of Veterans Affairs on July 18, 2011; Department of Defense Tuition Assistance Disbursements and MyCAA disbursements for fiscal years 2009-11 provided (by branch) by the Department of Defense on December 19, 2011. Committee staff calculated the average monthly amount of benefits collected from VA and DOD for each company, and estimated the amount of benefits received during the company’s 2010 fiscal year. 1936 “Federal education funds” as used in this report means Federal financial aid funds combined with estimated Federal funds received from Department of Defense and Department of Veterans Affairs military education benefit programs, and where available Federal financial aid funds permissibly excluded pursuant to the Ensuring Continued Access to Student Loan Act of 2008 (ECASLA).