Federal Scrutiny, Plunging Revenue Plague a Private College’s Attempt at a Turnaround

Among the people streaming onto Baker College campuses early this fall were some new faces: federal investigators conducting an unusual review of the marketing and recruitment practices of the Michigan private college.

The investigators looked at records and asked questions about admission interactions, including what prospective students were told about cost, financial aid and post-graduation salaries, according to multiple sources with direct knowledge who spoke anonymously because they said they could lose their jobs if they talked to the news media. Questions from the investigators focused on student experiences at Baker and whether the school lived up to promises made in the recruiting process.

The investigators’ presence is the latest sign of precarious times at the nonprofit college. The U.S. Department of Education, whose investigation into Baker was made public in June, could penalize the college by jeopardizing its accreditation or access to federal student aid. At the same time, Baker’s finances are spiraling down: Revenue and enrollment have declined precipitously in the past decade. Its Michigan footprint has shrunk from nine traditional campuses to five.

In a 2022 investigative report, ProPublica and the Detroit Free Press detailed the college’s low graduation rates and the heavy debt that many students shoulder. The college regularly spent more on marketing than on financial aid, and experts identified conflicts of interest in the college’s governance structure.

As the 2023-24 school year gets underway, not all students are aware of the peril their college could be in. Over several days in August, at Baker’s new Royal Oak campus, outside Detroit, only one of more than two dozen students interviewed knew about the federal investigation.

Over in southwest Michigan, Meayah Haselhuhn learned about it from news reports — and she’s concerned. The 25-year-old mom has been taking online classes at Baker while working full time, with hopes of graduating in a business program and landing a better-paying job by the time both her kids are old enough for school.

But now, she plans to find a different college.

“I cannot risk it,” she said.

Six weeks after Haselhuhn expressed those worries, federal investigators showed up.

Baker’s public relations manager confirmed that federal investigators were on site last week at two campuses, Owosso and Royal Oak. “We knew they were coming,” she wrote in an email, adding that “we are and will remain fully cooperative with any requests made from the Department of Education.”

Baker declined to answer additional questions about the inquiry. The federal government would not comment on the visits or the investigation. In a public disclosure notice in late August, Baker’s accreditor, the Higher Learning Commission, said the college must file a report on the status of the investigation every 90 to 120 days, but those reports are considered private and not available to students, faculty or staff.

Nonprofit schools like Baker aren’t typically subjected to such scrutiny.

Michigan, unlike most states, has no mechanism to oversee private colleges. But even states with such a system rarely use it, unless the school is close to shutting down. Accreditation agencies, meanwhile, generally have small staffs and rely on volunteers from other colleges who conduct site visits and read reports.

That leaves the federal government. But it has largely refrained from direct oversight of nonprofit colleges, except in extreme cases.

When it launches investigations, the focus has been on for-profit institutions. The unit investigating Baker was gutted under the Trump administration but reconstituted under President Joe Biden.

While high-profile investigations of schools like ITT Technical Institute and Corinthian Colleges led to their closure and loan cancellation for former students, there are no known completed investigations of nonprofit private institutions for marketing and recruitment practices in undergraduate programs.

Baker College is undergoing one of the most extraordinary periods of change in its 112-year history. Founded as a for-profit business college in Flint, and serving as a training ground for many auto industry employees, it converted to nonprofit status in 1977 and grew fast, propelled by federal Pell Grants and federally subsidized student loans. It became a pioneer in online learning, opened multiple campuses and grew to be the largest private nonprofit school in Michigan.

Money flowed into Baker’s accounts as the college grew. At the end of the 2013-14 academic year, Baker was bringing in $219 million in revenue and had $226 million in expenses. By the end of the 2022-23 school year, revenue was $58 million and expenses had shrunk as well, to $93 million.

From a high of about 45,000 students in 2011-12, enrollment is now about 4,000.

Baker’s officials have attempted a turnaround by orchestrating a radical shift in its target market, closing campuses in historically industrial places like Flint and Allen Park and building a new one in the more well-off suburb of Royal Oak. The rebranding from an open-enrollment college to a more traditional school includes being more selective in which students are admitted and devising a new mascot — the Baker College Bees.

For the 2018-19 school year, 2,107 prospective students applied to Baker. According to federal records, the college offered admission to about 80% of applicants and 745 of them enrolled.

By contrast, in the 2022-23 school year, about the same number of prospective students applied to Baker. The college offered admission to just over 35%, and 323 enrolled.

But the reality of its finances has meant steep cuts in spending. It chopped $10 million in spending on educational and instructional expenses between 2021 and 2022, audited financial statements show.

Baker has a large endowment, yet the proceeds remain largely untouched. Organized as the Jewell Educational Fund, it grew even as the college’s finances declined, rising 127% between 2011 and 2021.

Baker had about $350 million in its endowment in August 2022, the most recent numbers available. But its earnings have been lightly used, even as Baker closed campuses, and students took on sizable debt.

Records show that the extent of the endowment’s spending was $7.4 million on scholarships, or about 1.9% of the total on hand at the beginning of the 2021-22 fiscal year. Nationally, the average spend rate for endowments the size of Baker’s was 4.6%, according to a study by the National Association of College and University Business Officers.

With lower-income students lacking sufficient access to scholarship money, ProPublica and the Free Press reported in 2022, they often turned to federal loans. Former students described how they had left Baker without the skills necessary to succeed in a well-paying career but burdened by crushing sums of debt.

Some former Baker students have filed what are known as borrower-defense claims with the Department of Education, asserting that deception had led them to take out loans and that the loans should be forgiven. Data from 2020 showed that the number of claims about Baker was unusual for nonprofits. For-profits usually are the subject of such complaints. The Department of Education wouldn’t comment on how it is handling those claims.

Another place disgruntled former students have turned to is the U.S. Federal Trade Commission.

Between 2016 and mid-2023, about 60 complaints were received by the FTC involving accusations of misleading claims by Baker, ProPublica and The Chronicle of Higher Education found.

Among the complaints from 2022 was one from a student who wrote: “Baker College is a supposed non-profit institution, but they have made false claims about their employability of graduates, finances, and programs.”

Another wrote: “I was lured into a sense that I would be attending a college that valued their students only to learn that they valued my financial asset to the college and not my education. I feel that I have been deceived and used for their financial gain.”

The FTC declined to comment. It does not confirm or deny the existence of any investigations because the agency’s investigations are not public.

While Baker did not respond to detailed questions for this story, it said in previous statements to reporters that the college is not allowed to restrict student borrowing. It also emphasized a commitment to improving student outcomes and reducing their loan debt. It has defended its governance structure and marketing practices.

Haselhuhn, the mom who plans to leave Baker, also is concerned about departing with too much debt. She earned an associate degree from a community college at no cost, in part, she said, because she came out of Michigan’s foster care system.

For a year in Baker’s online program, she has about $13,000 in student loans, she said. “It’s hard to imagine paying it.”

Kevin, a Baker graduate who asked that his full name not be used, said he’s conflicted about the investigation.

He has a good job and remembers many excellent teachers at the Flint campus, he said. But he also saw problems, including students who, believing Baker’s marketing, took on debt for programs that wouldn’t lead to successful careers.

It’s “shameful,” he said, and he thinks Baker should be held accountable.

At the same time, he’s concerned that the investigation — and its possible consequences, including accreditation loss — will hurt Baker graduates.

Even as he pays down $55,000 in student-loan debt, he has one question: “Is my degree going to be worth nothing?”