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The U.S. Department of Education last week told Grand Canyon University that it had determined that the university remains a for-profit institution. The decision surprised many in higher education and could be relevant to other for-profits that are seeking to change their tax status, as well as to colleges that outsource the administration of online programs to outside companies.

Grand Canyon last year announced that it had received approval from a state regulatory agency in Arizona and its regional accreditor to convert to a nonprofit university. The university's publicly traded owner, Grand Canyon Education, sold the campus and academic operations for $870 million to the new, nonprofit Grand Canyon University. Under a 15-year contract, Grand Canyon Education provides a wide range of outsourced support services to the university in exchange for 60 percent of its tuition and revenue.

The Christian university enrolls roughly 105,000 students, more than 20,000 at its campus in Phoenix.

The department on Tuesday released its 18-page letter to Grand Canyon on the decision. It also released a written statement, noting that the call was based on the structure of the relationship between the university and Grand Canyon Education.

"Under the Higher Education Act and the department’s regulations, nonprofit institutions of higher education must operate for the benefit of the institution, not any other person or entity. Following its review of the transaction in which Grand Canyon University separated from its former owner, Grand Canyon Education, Inc., the department determined that it could not approve GCU as a nonprofit for purposes of its participation in federal financial aid programs because its operation is benefiting GCE," the department said. "Notably, under an agreement between GCU and GCE, GCE employs many of the key personnel providing management, oversight and strategic direction to GCU, and the president of GCU also serves as the chief executive officer of GCE. The department thus determined that GCU does not meet the criteria to participate in federal financial aid programs as a nonprofit."

Grand Canyon on Thursday published a statement responding to the Education Department's decision. It also cited a 15-page letter from October 2018 to the department on the conversion bid. 

The university said the feds made "critical errors" in the determination. Grand Canyon repeated that it may challenge the decision.

"The university is hopeful that the disagreements it has with the department on this topic can be resolved promptly with professional, productive discussions with the department," Grand Canyon said, "and the university is willing to work cooperatively with the department if there is any reasonable opportunity to do so."