Grand Canyon University was delivered from financial ruin earlier this year by a group of investors. In the bargain, a small Christian institution on the brink of insolvency became the first for-profit Christian college in the United States and a springboard for the investors’ plans to build a giant higher-education business.
The investors’ cash has been welcome, but it has also generated concerns about whether the traditional Christian mission can coexist with the new imperative to turn a profit. “How that will play out at a for-profit college is yet to be seen,” says James P. Helfers, dean of the College of Liberal Arts.
Grand Canyon’s financial saviors -- five investors who identify themselves as committed Christians -- have pledged to maintain the institution’s Christian character. They also plan to lower tuition, refurbish the campus, raise the quality of education, provide scholarships for many poor students, and multiply enrollment -- on campus and online. All this while earning healthy profits for themselves.
Robert C. Andringa, president of the Council for Christian Colleges & Universities, says that if the new owners go through with their plan to appreciably expand enrollment -- in part by opening branches in the United States and overseas -- Grand Canyon’s commitment to its Christian identity could weaken. He can understand five committed Christian investors maintaining the institution’s religious character, he says. But if their business grows to the point that they decide to sell shares publicly -- a possibility, the investors say -- “then we would be very skeptical.”
In the short term, says Mr. Andringa, there are questions as to “whether the investors would maintain the activities which are traditionally part of a campus education: sports, theater, debates, international exchanges, etc.” The new owners say they will, but for-profit institutions typically forgo such amenities and concentrate on teaching students marketable skills.
Mr. Andringa sees at least one positive side to the university’s takeover. He says that in online education for working adults, which Grand Canyon’s new owners want to build up rapidly, for-profit institutions tend to be “more student-oriented” than nonprofit institutions and “quicker to respond to a changing job market.”
“Why shouldn’t Christian higher education be in that market?” he asks.
For that matter, why shouldn’t a small institution saved from the abyss show other struggling colleges one way out of the financial wilderness?
Of the many small, private nonprofit institutions beset by financial pressures, few have opted to become for-profit, and no others have been religious colleges. If Grand Canyon succeeds, it could become a model for other financially troubled institutions seeking to right themselves.
Too Good to Be True?
Grand Canyon’s fate is now in the hands of the investors and their leader, Michael K. Clifford, an ebullient California-based deal maker who is the institution’s new vice chairman.
The success of the enterprise, he says, is predicated on two things. One is better business practices such as negotiating smarter deals with suppliers and eliminating waste. The other is strong growth in enrollment, especially in online programs.
Mr. Clifford says he and his partners are committed to building the “largest Judeo-Christian university in the world.” They foresee a new campus with 30,000 to 40,000 students in a few years -- and even larger enrollment in the more profitable online programs. (Last year’s on-campus enrollment was 1,600). He says he is in discussions with a Chinese company to open several campuses and he is also looking into moving to Dubai, in the United Arab Emirates.
Brent Richardson, the university’s CEO and its other vice chairman, says the investors originally expected enrollment at Grand Canyon’s main campus to grow to 2,500, “but we have been swamped with demand from students.”
While the former nonprofit institution could not make ends meet, the new administration plans to make a profit without gifts and with a lower tuition.
For the last academic year annual undergraduate tuition was officially set at $14,500. But when discounts and nonpayment are taken into account, says Mr. Clifford, the institution received an average of $8,700 per student.
A year from now tuition will be officially lowered to $7,000, he says. The university will offer many scholarships, and will try to recruit 15 percent of its students from inner-city neighborhoods and other disadvantaged backgrounds, generally on full scholarship. The university will also start stressing community service, and students will help clean up and provide services to the low-income Phoenix neighborhood in which it is located.
This scenario looks “almost too good to be true,” says Mr. Andringa, the head of the Christian colleges group. But he concedes of the new owners, “you get the impression these five guys are very business-astute.”
Mr. Clifford is recruiting high-powered evangelist personalities to be part of the ambitious project. Ken Blanchard, a well-known management consultant and author, has lent his name and expertise to Grand Canyon’s College of Business. Psychologist Kevin Leman, a best-selling author and frequent television guest, has done the same for the university’s School of Applied Psychology.
The university’s new chancellor is Tommy Barnett, senior pastor of the Assembly of God, in Phoenix, one of the fastest growing congregations in America. Reverend Barnett was asked whether a for-profit Christian college violated the Bible’s injunction against trying to serve both God and mammon.
“If you use mammon for good purpose,” he answered, “then there is no reason in the world not to make profits.”
A Marriage Made in Heaven?
Mr. Clifford, who never attended college, started his professional life in the 1970s as leader of a seven-member rhythm-and-blues band that opened concerts for popular acts like Sly and the Family Stone. He recalls earning lots of money, living a glamorous life, and abusing drugs. He says he felt empty.
In 1981 he became a born-again Christian and moved into fund raising for conservative religious groups, among them the Franciscan University of Steubenville, in Ohio -- a strictly orthodox Catholic institution -- and Campus Crusade for Christ.
He excelled as a fund raiser. In 1986, according to the Federal Election Commission, his company, Victory Communications, was paid more than $3.1-million by the presidential campaign of the conservative Christian televangelist Pat Robertson to stage a closed-circuit telethon. “We’re the highest-paid consultants in America,” Mr. Clifford boasted at the time to The Wall Street Journal.
In recent years, Mr. Clifford began looking for an opportunity to enter the surging for-profit higher-education business while continuing his involvement with evangelism. Grand Canyon appeared an ideal choice. Although on the verge of bankruptcy when Mr. Clifford approached it last fall, that information had not yet been disclosed and the institution was still in good standing with its accreditor.
“A lot of schools we looked at were on probation,” says Mr. Clifford. “This one had a pristine regulatory record.”
And a good location. Phoenix is one of the fastest growing American cities, but it has few private colleges. And Grand Canyon is one of only two evangelical colleges in the Rocky Mountain region.
Grand Canyon was founded in 1949 by the Arizona Southern Baptist Convention to train ministers and teachers. For 50 years it was a small institution that struggled to get by on tuition payments and donations from wealthy Baptists.
Then a flurry of unexpected blows brought the institution to its knees.
In 1999 the Baptist Foundation of Arizona, the church organization’s fund-raising arm, collapsed after prosecutors determined it had been carrying out a vast real-estate pyramid scheme. Some 11,000 investors, including many elderly Baptists, lost an estimated $590-million in what appears to have been the largest nonprofit fraud in history. Part of the money was later recovered.
Grand Canyon lost several small endowments in the collapse. In addition, say former administrators, a number of prospective donors lost considerable sums. The university cut its ties with the Baptist Church and became independent and nondenominational.
The tightening of visa restrictions after the September 2001 terrorist attacks led to a loss of dozens of foreign students. To make up for a growing budget shortfall, the institution raised tuition by 30 percent, only to see enrollments decline further as a result.
The final setback came last year. Despite its difficulties, the university managed to complete the construction of two new campus buildings: a student union and a new residence hall for 400 students. But two large donations, promised upon completion of those projects, never materialized.
Rapid Negotiations
A friend appealed to Mr. Clifford to help raise donations for the increasingly desperate institution. Instead of passing a collection plate, however, Mr. Clifford saw an opportunity: “It was easier to raise funds from for-profit investors than nonprofit donors.”
When Mr. Clifford started discussions with Grand Canyon’s Board of Trustees last October, the two-dozen trustees had only just learned that the university was several million dollars in debt. Many were shocked and angry that the administration had not informed them of the university’s problems earlier.
Initially the board considered selling only the university’s small online distance-education unit or merging Grand Canyon with another nonprofit Christian college, but by mid-December the financial crisis had worsened and the trustees moved forward with negotiations to sell the entire institution. They resolved to close the university if they could not strike a deal with Mr. Clifford and his colleagues before the start of the spring term.
The two sides announced a preliminary agreement on January 2. Significant Education LLC, the company formed by the partners to purchase Grand Canyon, took over the university’s debt and promised to invest millions more to improve the campus and the institution’s academic programs. Many details of the agreement, which was signed in February, have not been disclosed.
Students and faculty members returning to campus for the spring term were stunned by news of the sale, says Scott E. Savage, a Christian-studies major.
The new owners sought to blunt the shock by talking directly to the university community. In mid-January, before the purchase was official, Mr. Clifford and several colleagues called a meeting with students in a large campus auditorium to explain their intentions and answer questions.
“The new administration came in speaking honestly and candidly with students,” says Mr. Savage, who worked for the new administration this summer. “That’s a big deal.”
Although faculty members and trustees initially considered the takeover as something akin to sacrilege, many now appear to view the move as heaven-sent.
“For a lot of us, the term ‘for profit’ brought an automatic flinch,” says Bill R. Williams, a professor of mathematics and Grand Canyon’s president from 1978 to 1999. “But as I’ve watched it unfold, I don’t see any negatives in it.”
A few board members who were opposed to the sale resigned, but a large majority considered the deal a lucky break.
Significant Education has agreed to pay a royalty -- reportedly 5 percent of gross earnings -- to a nonprofit foundation run by the former members of the university board, which was dissolved. The money will go to building a new endowment that will enable the foundation to provide “a lot of scholarships,” says Donald E. Pewitt, a retired businessman who led the former university board and now chairs the foundation board. To help guarantee Grand Canyon will maintain its Christian mission, the foundation, called the Grand Canyon University Institute for Advanced Studies, has been given veto power over faculty hiring.
Ambitious Plans
One of the first actions taken by the new owners was to cancel contracts with several companies that, according to Mr. Clifford, were overcharging for such services as catering, computer systems, building maintenance, and recruitment. “Some consultants were milking the university,” Mr. Clifford says. The cancellations resulted in several breach-of-contract lawsuits, which are being resolved through out-of-court settlements, he adds.
A half year into the new ownership, a number of changes are already evident.
Earth-moving equipment has been noisily tearing up a road that led into the center of the campus, to make the grounds more pedestrian-friendly. Beautification plans for the campus, with its low buildings and open grassy spaces interspersed with palm and olive trees, call for the installation of covered walkways, prayer gardens, and fire pits.
A number of classrooms and offices are being equipped with multimedia computer technology, the library is getting new databases which can be accessed online from off campus, student advisory services are being beefed up, and student residences are being renovated. The new owners plan to raise faculty salaries by about 30 percent over the next 12 months, and have already handed out raises of between 5 percent and 12 percent.
Keen to generate publicity and cultivate a more modern image, the new administration conferred an honorary doctorate on shock-rocker Alice Cooper at its commencement ceremony in May. Mr. Cooper, who became a born-again Christian 13 years ago and has been a donor to Grand Canyon, has had music albums produced by an Arizona recording studio co-owned by Mr. Clifford.
The university has also dropped a chapel-attendance requirement for students, but administrators say they intend to make services more appealing by inviting lively, well-known guest preachers.
Significant Education is planning to spend $6-million on advertising over the next 12 months, almost entirely on Internet ads, according to Mr. Clifford.
“That amount will close to double every year for the next five years,” he says. Grand Canyon has also started marketing to large companies, trying to persuade them of the benefits of paying for online education for employees.
New Online Programs
Initial marketing efforts yielded a 1,000-student increase in enrollments in online degree programs during one month this spring, bringing the total to 2,900.
New online master’s and bachelor’s programs are planned in a number of professional fields, including nursing, pharmacology, and other scientific and technical specialties, and tourism and hospitality. Also planned are associate-degree programs for young high-school graduates who are already working, and shorter nondegree “certificate” programs.
The new owners laid off 22 administrative staff members shortly after taking over. But they have hired some 100 support staff to assist online students with such issues as financial aid, computer problems, and planning their course loads. And more than 200 teaching adjuncts have been hired to teach the online courses -- generally from wherever they happen to be, without having to come onto campus.
While the new owners have pledged to maintain the campus as an explicitly Christian college, the online programs are devoid of any Christian content or identity. Grand Canyon will thereby compete directly with other highly profitable, private online-degree programs, the largest of which is run by the University of Phoenix.
“I have always counseled [Mr. Clifford] to take one step at a time and possibly go slower than he thinks he can go,” says Steven D. Crow, executive director of the North Central Association of Colleges and Schools’ higher education commission -- Grand Canyon’s accreditor. Yet Mr. Crow considers the plans of Grand Canyon’s new owners “fairly realistic. I think it’s all doable.”
Grand Canyon U., Last Year and Now
After 55 years as a small, staid Christian university, the institution has begun changing under new for-profit owners.
- Campus enrollment:
- Last academic year: 1,600
- Now: 1,750. The new owners’ goal is a campus of 30,000 to 40,000.
- Online enrollment:
- Last academic year: 1,500
- Now: 2,900. The new owners’ goal is to enroll tens of thousands of online students.
- Tuition:
- Last academic year: $14,500, but the institution collected only $8,700 per student on average.
- Next year: will be reduced to $7,000 for 2005-6, according to the new owners.
- Spending on advertising and marketing:
- Last academic year: minimal
- Now: expected to be $6-million this academic year. New owners say spending should double in each of the next five years.
- Chapel attendance:
- Last academic year: required
- Now: no requirement, but new owners hope to attract students with dynamic invited preachers.
- Honorary doctorates:
- Last academic year: mostly to big local donors to the university.
- Now: shock rocker (and donor) Alice Cooper.
SOURCE: Chronicle reporting
http://chronicle.com Section: Money & Management Volume 51, Issue 2, Page A29