Dive Brief:
- The CEO of Grand Canyon Education, an educational services firm whose biggest client is Grand Canyon University, offered a defense of tuition-sharing during a call with analysts Thursday, saying the practice shields universities from financial risk.
- “Critics point to the revenue-share model as bad for universities,” GCE CEO Brian Mueller said during the call. “The past two years have proven them wrong, and we expect that in the next year, this will become even more apparent.”
- GCE takes around 60% of Grand Canyon University’s tuition and fee revenue in exchange for a suite of services, such as help with financial aid and marketing. Mueller’s defense of tuition-sharing came one day after the U.S. Department of Education announced it would review 2011 guidance that allows colleges to enter these types of contracts with companies that provide recruiting services.
Dive Insight:
Democratic lawmakers and policy advocates have been criticizing tuition-share agreements for years, arguing they incentivize companies to aggressively recruit students and drive up the cost of higher education.
They’ve also questioned whether these deals comply with federal law. The Higher Education Act bars colleges that receive federal financial aid from giving employees or companies incentive compensation for recruiting students into their programs.
Although tuition-sharing falls under incentive compensation, the Education Department released guidance in 2011 carving out an exception for colleges contracting with firms that provide recruiting along with a bundle of other services.
This carve-out, often called the bundled services exception, has been credited by some with kicking off the vast online program management, or OPM, industry. At least 550 colleges contract with OPMs to help launch and run their online programs, according to one count, though the true number is likely much higher.
OPM firms have been on the defensive, often arguing that colleges rely on these arrangements because they shift financial risk to private companies, which provide the upfront capital needed to get programs off the ground.
Mueller sang a similar tune in his comments to analysts.
“In inflationary periods like the one we are currently experiencing or when demand declines, as it has, GCE as a service provider absorbs the majority of the financial risk,” he said. “Our expertise, technology and processes have allowed our university partners to continue to benefit during these challenging times.”
GCE could be heavily impacted by the Education Department’s review of the 2011 guidance.
In a Securities and Exchange Commission filing Thursday, the company said its business model relies on the carve-out the 2011 guidance provides. Moreover, because the bundled services exception was created through guidance — and not official agency regulation — it could be rescinded without warning, the company said.
“The revision, removal or invalidation of the bundled services rule by Congress, (the Education Department) or a court could require us to change our business model,” the SEC filing said.
Despite potential storm clouds ahead, the publicly traded company’s share price opened at $119.58 on Friday, up 4.5% from the day before.
GCE reported that revenue reached $911.3 million in 2022, rising 1.6% from the prior year. The increases were driven by an uptick in on-campus enrollment at Grand Canyon University, though these gains were partially offset by declines in the institution’s online student population.
Net income fell to $184.7 million for 2022, down 29.1% from the year before.
