Meeting of the Board of Regents | December 2008

THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234

 

TO:
FROM:	Frank Muñoz
SUBJECT:	Swedish Institute, Inc.: Authorization of Degree Powers Upon a Change of Ownership
DATE:	November 26, 2008
STRATEGIC GOAL:	Goals 2 and 4
AUTHORIZATION(S):

 

SUMMARY

 

Issue for Decision

 

Should the Board of Regents authorize Swedish Institute, Inc. to award degrees under a new ownership arrangement?

 

Reason for Consideration

             

              Required by State Regulation.

             

Proposed Handling

 

This question will come before the Higher Education Committee at its December 2008 meeting, where it will be voted on and action taken.  It then will come before the full Board at its December 2008 meeting for final action.

 

Procedural History

 

On June 24, 2008, the Board of Regents granted temporary authorization for Swedish Institute, under its new owner, Quad Partners, to award Associate in Occupational Studies (A.O.S.), Bachelor of Professional Studies (B.P.S), and Master of Science (M.S.) degrees on duly qualified students successfully completing registered programs for a period beginning upon execution of the final phase of the purchase agreement and ending on December 24, 2008. Earlier, on April 7, 2008, Quad Partners submitted a proposal for a temporary transfer of degree-conferring authority. Section 3.58 of the Rules of the Board of Regents provides that the Regents may consent to a temporary granting of degree-granting authority for good cause, which, in this case, related to the serious illness of the current owner and to ensure continuation of programs for current students.

 

The owners of Swedish Institute, Inc. (Swedish Institute) had proposed to sell the corporation to Quad Partners II LP (60% ownership) and Quad Partners III-A LP (40% ownership), Delaware limited partnerships under the auspices of Quad Partners, LLC (Quad Partners), which was established in 1999 to acquire, own, and operate career-oriented educational institutions. The transfer of ownership was to occur in two phases, according to a purchase agreement dated March 13, 2008.  The first phase occurred on March 13, 2008, and included an agreement for Quad Partners to purchase a 49% stake in Swedish Institute. The second, and final, phase of the agreement, which transferred the remainder of Swedish Institute’s shares to Quad Partners, occurred on September 12, 2008 after the Board of Regents authorized the Institute to award degrees temporarily under a new ownership arrangement.

 

Quad Partners now seeks approval for permanent authorization to award degrees as the new owner of Swedish Institute. On September 16, 2008, the Board of Regents authorized Pacific College of Oriental Medicine (New York), Inc.  under its new owner, Quad Partners, to confer degrees upon execution of the final phase of the purchase agreement.

 

Background Information

 

SWEDISH INSTITUTE, INC

.

 

Swedish Institute, Inc. is a New York business corporation located in Manhattan.  Founded in 1916, Swedish Institute is the oldest school of massage therapy in the United States.  It was first licensed by the Department in the 1930s. Swedish Institute is a for-profit institution that was first incorporated under Business Corporation Law in 1954. In August 1999, the Institute received approval to award the Associate in Occupational Studies (A.O.S.) degree to students completing the massage therapy program.  In November 2003, the Board of Regents authorized the Institute to confer the Bachelor of Professional Studies (B.P.S.) and Master of Science (M.S.) degrees.

 

Although the college continues to offer quality educational programs, the longstanding owner and majority stockholder, Paula Eckardt, was unable to dedicate the time and attention necessary to operate the college, due to illness.  On March 6, 2008, Ms. Eckardt approached Quad Partners seeking funds necessary to repay debt and expenses coming due; and on March 13, 2008, an agreement was reached which would allow Quad Partners to acquire the college, and to provide additional capital and operating assistance needed to ensure the Institute’s ongoing success.

 

Prior to the Regents granting temporary degree conferring authority in June 2008,  a site visit to the Institute confirmed that it was in compliance with regulatory registration standards. The following synopsis is based upon information gleaned during that site visit and additional documentation submitted.

 

Today, Swedish Institute offers a licensure-qualifying, A.O.S. degree program in Massage Therapy; a licensure qualifying, M.S. degree program in Acupuncture; and a licensure qualifying program in Acupuncture leading to the B.P.S./M.S. degrees.  In the fall of 2007, the College enrolled approximately 600 students. Swedish Institute is institutionally accredited by the Accrediting Commission of Career Schools and Colleges of Technology (ACCSCT). The Acupuncture program is accredited by the Accreditation Commission for Acupuncture and Oriental Medicine (ACAOM). The Massage Therapy and Acupuncture programs are registered as licensure-qualifying by the Department.

 

The college occupies three floors of a ten-story building in Manhattan, including classrooms, clinics, a student lounge equipped with computer stations, a library, bookstore and all administrative offices.  Classrooms are equipped with tools that enhance learning, such as anatomical models, audiovisual equipment, and digital technology.  There are three specialized clinic areas with individual treatment spaces and a reception area for patients. The library contains texts, journals, and research materials related to each profession, and offers access to electronic databases.

 

Enrollment at the college has been fairly consistent over the past five years, increasing from 566 students in 2003 to 655 students in 2007. A slight decrease occurred during the past year.

 

Swedish Institute is considered one of the premier massage therapy schools in New York State. The Institute’s graduates consistently excel on the New York State Massage Therapy licensing exam. In August 2008, 95% of the 77 students taking the examination passed and in January 2008, 98% of the 147 examination takers passed. The college reports that 81% of its acupuncture graduates passed the NCCAOM examination in 2006 and that 92.3% of the graduates are working in their field. The Institute attributes its success to its faculty, resources, and rigorous academic standards and requirements.

 

Both the Massage Therapy and Acupuncture programs operate on a tri-semester model, requiring students to take between 14-17 credit hours per semester.  The licensure-qualifying Massage Therapy program consists of 61.5 credit hours leading to the A.O.S. degree.  Students must take a core which includes anatomy & physiology, neurology, massage techniques, pathology and professional development, in addition to supervised clinical internships.

 

The licensure-qualifying, 144.5 credit-hour Acupuncture program leading to B.P.S./M.S. degrees consists of a foundation of general education courses and the philosophical basis of Chinese medicine, and progresses to more advanced courses in muscular and skeletal anatomy, physiology, biomedical pathology, and location of acupuncture points.  The program also requires supervised clinical internships, a comprehensive examination, and a Master’s portfolio.

 

Swedish Institute has a well-qualified faculty that offers sound programs of study. In 2005, it had 20 full-time and 64 part-time faculty for a student-faculty ratio of 9.9:1. It provides appropriate academic services to support the students it enrolls.

 

Swedish Institute uses Licensed Massage Therapists to teach Massage Therapy techniques courses in the A.O.S. degree program. Instructors must have three years of experience working in the field, or its equivalent. Non-technique courses may be taught by instructors who are not massage therapists but are otherwise qualified through education or experience.  A total of 59 instructors teach various courses in the Massage Therapy program.

 

Faculty teaching Oriental medicine or acupuncture technique and clinical courses typically have a professional license and an appropriate terminal degree in the field – a Master’s degree in acupuncture or traditional Oriental medicine or its equivalent.  They must also have a minimum of three years of patient care experience.  Clinic supervisors are licensed in New York State and have a minimum of five years of patient care experience.  A total of 34 instructors teach acupuncture, Oriental medicine and/or clinical courses in the program.  All are licensed acupuncturists, one has a Ph.D. (from China) in the field and 28 have terminal Master’s degrees in the field.  Five do not have terminal degrees but completed accredited acupuncture programs and/or have otherwise equivalent education and experience. 

 

Swedish Institute’s current tuition and fees for full-time students is approximately $10,000 per year.  The five-year financial plan projects average tuition per student to rise modestly each year and average around $12,000 by 2013. 

 

The Department reviewed the audited financial statements for the Institute for the period ending June 30, 2007. Their expenses exceeded revenue by 8%. The federal composite score for the period was 1.2, which is interpreted as “financially responsible” but in the zone where additional monitoring was needed. The composite scores for 2006 and 2005 were 1.7 and 1.8, respectively.  These scores are interpreted as “financially responsible.” Part of this decrease in the federal composite score for the last year may be attributed partially to the illness of the owner.

 

Financial projections reflect continued losses for the 2008 fiscal year, but indicate a return to profitability by 2010, with a modest increase in enrollment, tuition, and a leaner administrative structure.  By the fifth year of operation, there is a projected net income in revenue, representing a 7% margin of income over expenses.

 

A follow-up site visit to Swedish was conducted in November 2008 to assess the college’s operation since Quad Partners was granted temporary approval to award degrees. Students continued to be upbeat about their program, indicating it was difficult but that instructors were enthusiastic and helpful. They reported that admissions staff did not mislead them and that they found their programs to be as advertised. Some students had difficulty mastering the program but other students and faculty were available to help them.

 

Faculty continue to have a dedication to their students. When they mentioned that teaching was become more difficult because of the condition of some of the college’s skeletons, Quad purchased some new ones. Research opportunities are being expanded through a new affiliation with Montefiore Hospital. Swedish has faculty that have been at the college for a number of years, others for 10 or more years, and others with tenures of just a few years. Faculty felt this mix with different perspectives was a strength in continuing to offer quality, relevant programs.

 

Staff interviewed commented that Quad representatives have played a helpful, but passive role thus far and were very enthusiastic about the direction Swedish was taking. The admission goal for the next class has been met and the Director of Admissions indicated that representatives from Quad have been extremely helpful in providing ideas and assistance. Quad is installing a new interactive phone system so that all callers will speak to an individual who will talk to the caller and get the caller to the appropriate staff member. Administrators are looking forward to a new integrated computer software package that will significantly upgrade and automate administrative processes. This will make administrative functions and data collection and reporting easier.

 

QUAD PARTNERS

 

Swedish Institute was purchased by Quad Partners II LP and Quad Partners III-A LP (Quad Partners). Quad Partners makes acquisitions through two Delaware limited partnerships, Quad Partners II LP and Quad Partners III-A LP. These two limited partnerships are controlled by their general partners, Quad Advisors II LP and Quad Advisors III LP.  The general partners are Lincoln Frank, Andrew Kaplan, Thomas Kean, Daniel Neuwirth, Stephen Spahn and Russell Dritz.  The limited partners of the two limited partnerships are passive institutional and individual investors. At its June 2008 meeting, the Board of Regents authorized Swedish Institute, Inc. to award degrees temporarily under a new ownership arrangement with Quad Partners. At its September 2008 meeting, the Board of Regents authorized Pacific College of Oriental Medicine (New York), Inc. to award degrees under a new ownership arrangement with Quad Partners. 

 

Currently, Quad Partners owns a majority interest in BeckfieldCollege – a college in Kentucky, offering bachelor’s, associate, and certificate programs in nursing, paralegal, business, allied health, computer networking, and criminal justice. Quad Partners also owns a majority interest in two institutions in New York State licensed by the Department’s Bureau of Proprietary School Supervision:Culinary Academy of Long Island– a non-degree school in Syosset offering commercial cooking, baking and hotel management programs; andCulinary Academy of New York(d/b/a Career Academy of New York) – a non-degree school in Manhattan offering commercial cooking, baking, hotel management and medical assisting programs. 

 

Quad Partners holds non-control, minority interests in three non-degree institutions:  Dorsey Business Schools– a non-degree school with four campuses in Michigan offering programs in allied health and business;Blue Cliff College – a career school with eight campuses in Louisiana, Mississippi and Arkansas offering diploma programs in allied health and massage therapy; and B&H Education – a non-degree school with 22 campuses in California offering training for the salon/spa industry, including cosmetology, hair design, esthetics and manicuring.

 

Quad Partners principal, Lincoln Frank, has indicated that Quad Partners has never sold an acquired school, since its establishment in 1999.

 

REGULATORY PROVISIONS

 

The purchase of a proprietary college does not automatically include a transfer of degree-conferring powers.  Pursuant to §224 of the Education Law, the consent of the Board of Regents is required before a proprietary college, operating under a new owner, can award degrees – either temporarily or without term. Section 3.58 of the Regents Rules includes the standards, requirements, and procedures the Department shall use in determining whether to recommend to the Board that it grant such authority to the new owner of a proprietary college. 

 

Quad Partners submitted an application to the Department for authority to award degrees as the new owner of Swedish Institute, Inc. Section 3.58(e)(6)(ii) of Regents Rules lists five standards by which to evaluate the prospective owner’s capacity to operate the existing college. Below is a summary of the Department’s findings in respect to each of these standards.

 

Standard (a)



: Evidence confirming the prospective owner’s capacity to operate the institution in compliance with the Education Law, program registration standards set forth in Part 52 of this Title, other Rules of the Board of Regents and Regulations of the Commissioner of Education, other State statutes and regulations, and Federal statutes and regulations, relevant to the operation of degree-granting institutions.

 

Quad Partners is an organization founded in 1999 exclusively to acquire, own and operate schools, colleges and related education companies.  Currently, Quad owns interests in six postsecondary school groups with 37 campuses across the country.  Quad’s team consists of a group of educators, school administrators and investors, including the former governor of New Jersey and president of Drew University. 

 

Managing partner Lincoln Frank was the Chief Operating Officer of J.P. Morgan Capital Corporation and a board member/principal of its private equity fund, an investment banker with Goldman, Sachs & Co. and a lawyer with Skadden Arps. He holds an LL.M. from Cambridge University, a J.D. from the University of Pennsylvania Law School and a B.A. from Wesleyan University.

 

General partner Thomas Kean was the President of Drew University in Madison, New Jersey from 1990 to 2005. Previously, he was Governor of New Jersey from 1982-1990 and noted for numerous education reforms. He chaired the Education Commission of the States and National Governors' Association's Task Force on Teaching. He also was the Chairman of the 9/11 Commission. He holds an M.A. from Columbia University Teachers College and a B.A. from Princeton University.

 

General partner Andrew Kaplan was a senior executive at Kaplan, Inc. Before joining Kaplan, he served as Director of the Educational Technology Group at Scholastic. He holds an M.B.A. from New York University’s Stern Business School and a B.A. in Computer Science from Brandeis University.

 

General partner Daniel Neuwirth previously worked at Donaldson, Lufkin & Jenrette in the Merchant and Investment Banking groups with a focus on education companies. Earlier, he spent three years at Goldman, Sachs & Co. in the Principal Investing and Investment Banking areas. He holds an M.B.A. from the Amos Tuck School at Dartmouth and a B.A. from Williams College.   

 

General partner Steven Spahn has been the Headmaster and owner of The Dwight School, a K-12 school in New York City, since 1967. He is the founder of The International School of London, an owner of John Catt Educational Ltd., a U.K. Publisher, and previous owner of several career schools. He completed coursework for a Ph.D. at Columbia University, attended Oxford University and holds a B.A. from Dartmouth College.

 

Principal Russell Dritz previously worked as a media and telecommunications investment banker at Credit Suisse First Boston with a focus on the education, entertainment and publishing sectors. He holds a B.S. in Economics from The Wharton School at the University of Pennsylvania.

 

Mr. Frank has indicated that Quad Partners intends to maintain ownership of Swedish Institute on a long-term basis.  In an April 2008 letter to the Department, Frank states that “Quad Partners is a long-term owner and operator of colleges.  We have never sold a college group.” He further notes that the General Partners associated with the organization have been involved since its founding in 1999, and that they “are passionate about the value of education to our community and protecting our reputation as quality school owners.”  He points to the continuing commitment to and stability of their present educational holdings.

 

Standard (b)



: Evidence confirming that the prospective owner has sufficient financial resources to ensure satisfactory conduct of degree programs and achievement of the institution’s stated educational goals.

 

              Quad Partners was established for the sole purpose of acquiring and supporting educational institutions, and has established a track record of stable and steady financial commitments in support of its degree and non-degree granting institutions. The purchaser is an investment firm with current “Committed Capital” of $72.8 million. They have an additional $119.4 million available for future investments and expenses.

 

Standard (c)



: Evidence of the prospective owner’s experience operating an educational institution or other business or enterprise in an effective manner which demonstrates the prospective owner’s capacity to operate a degree-granting institution.

 

Quad Partners owns interests in a mix of degree and non-degree institutions with a focus on careers. BeckfieldCollege is an occupational college in Kentucky offering bachelor’s, associate, and certificate programs in nursing, allied health, computer networking, paralegal, business and criminal justice. CulinaryAcademy of Long Island is alicensed non-degree school in Syosset offering commercial cooking, baking and hotel management programs. CulinaryAcademy of New York is a licensed non-degree school in Manhattan offering commercial cooking, baking, hotel management and medical assisting programs. In addition to those three schools in which Quad Partners has a majority interest, the following represent schools in which Quad has a minority interest. Dorsey Business Schools is a non-degree school with four campuses in Michigan offering programs in allied health and business.  Blue Cliff College is a career school with eight campuses in Louisiana, Mississippi and Arkansas offering diploma programs in allied health and massage therapy. B&H Education is a non-degree school with 22 campuses in California offering training for the salon/spa industry, including cosmetology, hair design, esthetics and manicuring.

 

The Department conducted a site visit to Beckfield College in August 2008 to determine the effectiveness of the new owner since acquiring the College in 2006.  The site visit included a thorough examination of records; accreditation, academic and financial reports; staff and student interviews; class audits; and a tour of the facilities.   Consistent with Quad Partners claims that it encourages and implements targeted, yet gradual, growth strategies, the College has experienced a modest increase in enrollment (5-10%), and has cautiously expanded programs and facilities to meet future demands.  Since acquiring the College in 2006, they have introduced new associate degree programs in Allied Health and Computer Networking Administration, and are expanding facilities to accommodate didactic and clinical laboratory needs in the Nursing and health-related programs.  Faculty and staff were excited about the new facilities and equipment. All national accreditations are up to date, and student pass rates on the nursing NCLEX examinations have increased from 69% in 2007 to 94% in 2008.  Interviews with students, faculty, and administration yielded positive feedback regarding the College, its programs, and the transition to new ownership, with most commenting on the subtle nature of the ownership transition.  The reviewers commented positively on the current direction of the College.

 

Standard (d)



: Evidence that postsecondary education institutions that the prospective owner operates in New York State or elsewhere, if any, are in compliance with Federal and state statutes and regulations and accreditation requirements relevant to the operation of such institutions.

 

The Department’s Bureau of Proprietary School Supervision reports that there are no problems with either the Culinary Academy of New York or the Culinary Academy of Long Island. Inquiries made to other states resulted in no negative feedback regarding Quad Partners. The Department was informed that representatives of Quad Partners were cooperative and wanted to comply with state standards. 

 

Beckfield College is currently accredited and licensed by the Accrediting Commission for Independent Colleges and Schools (ACICS), the Kentucky Council on Postsecondary Education, and the Indiana Commission on Proprietary Education.  The Culinary Academy of Long Island and the Culinary Academy of New York are both licensed through the Bureau of Proprietary School Supervision and accredited by the Accrediting Commission of Career Schools and Colleges of Technology (ACCSCT). Blue Cliff College is licensed by the Louisiana Department of Education Proprietary School Commission and the Mississippi Commission on Proprietary School and College Registration, and accredited by ACCSCT.

 

Beckfield College, Culinary Academy of New York, Culinary Academy of Long Island, and Blue Cliff College campuses in Mississippi and Louisiana are approved by the Department of Education to provide Title IV Federal Aid to qualified applicants.

 

Standard (e)



: Evidence that the prospective owner has not engaged in fraudulent or deceptive practices.

 

The Department’s review revealed no evidence of fraudulent or deceptive practices by Quad Partners or any of its related partnerships.

 

NEW OWNER’S PLAN FOR OPERATION

 

Quad Partners plans no major changes to Swedish Institute.  According to the application, Quad Partners “intends to increase enrollment slowly over the next five years in order to maintain academic quality.”  The Board of Regents has granted approval for transfer of degree-conferring authority at Pacific College of Oriental Medicine, a proprietary degree-granting institution in Manhattan, to Quad Partners upon finalization of its purchase agreement. While maintaining the two as separate institutions of higher education, Quad Partners intends to provide a common management for them. It asserts that this ownership/management arrangement will provide critical benefits for Swedish Institute, such as expanded academic opportunities, improved administrative capabilities, and increased financial resources.

 

The proposed owner plans to continue to operate in Swedish Institute’s current location in Manhattan. The Institute has no branches, extension sites or inter-institutional programs, but has a number of affiliations for internship sites.  The proper faculty and department heads supervise and monitor all internship sites and activities to assure compliance with the Commissioner’s Regulations.

 

Swedish Institute’s 2008 five-year financial plan projects full-time enrollment growing by an average of about 30 students per year, from 603 in 2008 to 748 in 2013.  Quad Partners intends to keep most of the college’s current operational structure in place, using the same tri-semester model, curricula, accrediting bodies, faculty, evaluation systems, and educational programs.

 

While senior administration will be responsible for final policy determinations, Swedish Institute is committed to the full participation of faculty in the governance of the college.  The Massage Therapy and Acupuncture departments have similar operational structures, but vary according to the curricular and clinical needs of each profession.  For the Massage Therapy Department the principal vehicle for faculty governance at the departmental level is the Massage Therapy Curriculum Committee, consisting of the Academic Dean for Massage Therapy and the six content department chairs.  A core group consisting of the Dean and a limited number of chairs meets weekly to deal with operational issues and ongoing work with curriculum, new courses, professional development, academic standards and faculty review. Instructors are often invited for discussions relating to their specialties or for participation in ad hoc groups established for special projects. 

 

              The Acupuncture Department is managed by a committee consisting of the Academic Dean for Acupuncture, the Administrative Dean for Acupuncture, the Dean of Curriculum Development and Research, the three department chairs (Acupuncture and Oriental Studies, Clinical Skills and Biosciences) and the Clinical Director. This committee meets approximately weekly, under the direction of the Administrative Dean, and, in addition to operational issues, deals with curriculum, academic standards, assessment and professional development.  Issues raised by the Program Advisory Committee and the Student Advisory Council are also discussed.

 

The curricular objectives and student expectations are stated in the catalog, printed materials, and online.  The syllabi and curricular materials that were supplied were standard curriculum materials expected from programs that are licensure qualifying.  Quad Partners intends to maintain the current catalog, online materials and policies. The most recent program change in December 2007 involved refocusing the Acupuncture program as a multiple award B.P.S./M.S. program and moving away from the stand alone M.S. program.  Quad Partners intends to maintain this focus.

 

Recommendation

 

Based on a review of the documentation received and its site visits to Swedish Institure and Beckfield College, the Department has determined that Quad Partners satisfies the Regents criteria for a transfer of degree conferring authority at Swedish Institute. Accordingly, it is recommended that the Board of Regents authorize Swedish Institute under its new owner, Quad Partners, to award Associate in Occupational Studies (A.O.S.), Bachelor of Professional Studies (B.P.S), and Master of Science (M.S.) degrees on duly qualified students successfully completing registered programs.

 

Timetable for Implementation

 

If the Board of Regents authorizes Swedish Institute to award degrees under its new owner, the authorization will take place immediately.