Pending college acquisition raises questions

The recent announcement by Daniel Webster College in Nashua that is it being acquired by ITT Educational Services Inc., a for-profit, publicly traded corporation that operates schools nationally, raises a number of policy and legal questions, and points to some interesting New Hampshire history.

Robert (Skip) Myers, the president of Daniel Webster, announced the acquisition in an e-mail, calling it “extraordinary good news.” He summarized the hopes of the college to grow and prosper, and cited its “Vision 2015” plan that had been put in place to make the future secure.

However, he admitted, “The obstacle has always been money … or more precisely, the lack of it.” In other words, things were tough and the future of the college without help was bleak.

Myers wrote that the acquisition provides a partner with resources that “will enable Daniel Webster College to actually fuel the engine of growth, sustainability and vitality we have long sought.”

Over the years, for-profit schools and colleges have become not-for-profit ones (New Hampshire College/Southern New Hampshire University being the largest and most notable), for-profit colleges have been acquired by other for-profits (Hesser College, McIntosh College), and, unfortunately, institutions of both kinds have gone out of business (Nathaniel Hawthorne, Belknap, Franconia, Notre Dame, etc.)

However, the acquisition of a not-for-profit by a major corporation may be a new development for New Hampshire.

Not-for-profit institutions in New Hampshire are known as “charitable trusts” and are supervised by the Division of Charitable Trusts of the attorney general’s office.

It is the division’s responsibility to insure that funds donated for charitable purposes continue to be used for those purposes. When a not-for-profit, tax-exempt institution goes out of business, they assure, under the jurisdiction of the proper probate court, that the assets are assigned to new charitable purposes most closely meeting the purposes for which they were given or grew.

For example, when not-for-profit hospitals have been purchased by for-profit corporations, foundations have been established both in the Seacoast and Derry to hold the charitable assets created by the purchase price. When colleges have gone out of business, libraries, endowments and viable programs have been transferred to other institutions.

In the case of health-care providers, there is a statute governing the process of acquisition. There is no such statute in the case of a college.

What will happen in the case of Daniel Webster’s purchase, assuming it passes the other regulatory hurdles, if there are charitable assets, endowment funds or an actual purchase price with dollar signs attached? It will set an interesting precedent.

The other regulatory bodies interested in any acquisition include the state’s Postsecondary Education Commission and the New England Association of Colleges and Schools, the accrediting body that examines and certifies programs and institutions.

Daniel Webster is not the only institution that has had worries about economic viability.

Relatively young institutions without significant endowment are known as “tuition-driven” institutions, which means they need every student to make budget. Increasing competition, demographics showing slowing growth in the number 18-to-22-year-olds and the substantial cost of a college education, all challenge every school. The recession has made each college, its administrators and governing boards, nervous, especially at this time of year, when applicants decide where to attend.

Further, alternate models of education have become increasingly popular, most notably community colleges as have such programs as Southern New Hampshire University’s “Advantage Program” – which offers students the chance to take the first two years at a satellite campus at a significant savings.

In his message, Myers wrote that “ITT Educational Services will pay off in its entirety the college’s debt of more than $20 million and plans to begin investing immediately not only in what we will call the ‘showcase’ campus here at Nashua, but also in the growth of a distributed learning network that, initially, will reach throughout New England and, ultimately, to the other regions of the nation.”

For those familiar with the charitable trust, accreditation, and regulatory processes, this development and those statements present a host of issues. The announcement undoubtedly has gotten the attention of other educational institutions as well.

It is interesting to speculate about whether the late Sam Tamposi, former U.S. Sen. Warren Rudman and the others who founded Daniel Webster College could have foreseen this development — and what they would think of it.

Brad Cook is a shareholder in the Manchester law firm of Sheehan Phinney Bass + Green and heads its government relations and estate planning groups. He also serves as secretary of the Business and Industry Association of New Hampshire.