Sectoral Analysis

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Overview of the Higher Education Industry

Brazil

Data from the MEC [Ministério da Educação e Cultura, or Ministry of Education and Culture]/INEP [Instituto Nacional de Estudos e Pesquisas Educacionais, or Brazilian National Institute for Educational Studies and Research] indicate Brazil was the fifth largest higher education market worldwide and the largest higher education market in Latin America, approximately 8.0 million enrolled students in 2016. Higher education is comprised of sequential programs organized by field of knowledge, with different scopes and open to candidates who have a high school or equivalent certificate and meet the educational institution’s requirements. There are three types of higher education programs: (i) undergraduate programs, for students who have a high school or equivalent certificate and are approved in a selection process; (ii) graduate programs, which comprise master’s, doctorate, specialization, improvement and other programs, for students who have an undergraduate degree and meet the educational institution’s requirements; and (iii) extension courses, for students who meet the specific requirements the educational institution establishes for each of them.

The Ministry of Education’s Sinopse da Educação Superior 2016 [2016 Higher Education Synopsis] indicates there were 2,364 higher education institutions in Brazil. In addition, approximately 25% of all enrolled students in 2015 went to public education institutions whereas 75% went to private education institutions. The number of students enrolled in on-campus and distance-learning undergraduate programs in private higher education institutions rose by 18%, from approximately 5.1 million in 2012 to 6.1 million in 2016 according to the MEC [Ministério da Educação e Cultura, or Ministry of Education and Culture].

Source: Report "Brazilian Education - Is the student benefiting from higher education? Substantially, according to labor survey", prepared by JP Morgan on August 21, 2016.

Source: IBGE e MB Associados.

Source: Report "Brazilian Education - Is the student benefiting from higher education? Substantially, according to labor survey", prepared by JP Morgan on August 21, 2016.

Source: Report "Brazilian Education - Is the student benefiting from higher education? Substantially, according to labor survey", prepared by JP Morgan on August 21, 2016.

In fact, the higher education market has consolidated itself as an attractive target for investors over the last 10 years. Official data from the Higher Education Census published by INEP [Instituto Nacional de Estudos e Pesquisas Educacionais, or Brazilian National Institute for Educational Studies and Research] in 2015 show enrollment numbers have been increasing consistently in Brazil, having risen by 4.5% on average per year between 2005 and 2015.

Source: MEC/Inep.

In addition, the goals proposed by Brazil’s PNE [Plano Nacional da Educação, or National Education Plan], which covers the period from 2011 to 2020, show an environment conducive to the expansion of higher education in Brazil. One of those goals is to increase the Gross Rate of higher education to 50% and the Net Rate to 33% of population between ages 18 and 24. ("Gross Rate" is defined as the total number of enrollments at a specific education level divided by the population in the age bracket appropriate for that level. "Net Rate" is the percentage of population in a certain age bracket enrolled in an education level appropriate for his/her age bracket.)

According to the latest data for 2014, as the charts below show, the Gross Rate stood at 34% and the Net Rate at 18%. As a result, PNE’s goal is to double those rates. To achieve it, the Brazilian Federal Government intends to provide expansion mechanisms that preserve the quality of private higher education institutions, and to consolidate and expand student loan and scholarship programs, which will make undergraduate programs offered by private higher education institutions even more affordable in Brazil.

Vocational and Professional Education Market

Professional education prepares students with an elementary school certificate for the labor market. It is an intermediate level between secondary and higher education. Alternatively, it can be a substitute for higher education for high-school graduates.

Public and private institutions that offer vocational education are classified as vocational schools, agrotechnical schools or professional education centers among others. Vocational programs differ from professional programs because their curricula are regulated and accredited by the MEC. Overall, vocational and professional programs last between 18 and 36 months.

Distance Learning

Technology has led to major innovations in the education industry. For example, digital content increasingly facilitates the emergence of new educational methods, such as distance learning. Educational materials use multimedia resources and digital content more and more to supplement and even replace traditional printed materials. In fact, these trends gain momentum in the educational industry as young people have access to technological resources and change their habits.

Distance learning provides an opportunity for higher education to increase its penetration in Brazil. Offering lower tuition fees, it has led to a significant increase in the number of students who can afford to enroll in higher education programs. Distance learning provides education through remote learning technologies and tools since professors and students do not engage in direct, person-to-person contact. Distance higher and vocational programs is currently better developed and regulated by the Brazilian Federal Constitution, Lei de Diretrizes e Bases da Educação Nacional [Law of Guidelines and Bases of Brazilian National Education], Administrative Rules, resolutions and standards issued by the MEC and State Departments of Education.

Distance learning has a high growth potential since it allows attracting people who have difficulty attending on-campus classes because they have no time, live in remote areas or cannot go to campus. Distance learning programs tend to facilitate students’ access to education and improve the retention of students attending higher education and vocational programs, as well as preparatory courses and language courses, among others.

The chart below shows teaching degree programs accounted for 18% of all enrollments in on-campus programs in 2015.

Student aid

The larger number of financial aid options, coupled with a rise in the number of higher education institutions and programs targeted at the middle- and lower-classes, provides an opportunity to increase the number of students enrolled in higher education programs in Brazil

Source: INEP / MEC.

Designed to improve education in Brazil, some financial aid options involve tax and financial incentives for educational institutions that have students benefited by some of the Brazilian government’s programs, such as PROUNI [Programa Universidade para Todos, or University for All Program], FIES [Fundo de Financiamento ao Estudante do Ensino Superior, or Financing Fund for Higher Education Students] and PRONATEC [Programa Nacional de Acesso ao Ensino Técnico e Emprego, or Brazilian National Program for Access to Vocational Education and Employment].

With those financial aid programs, students from middle and lower class families, who have historically had very limited access to higher education, have accounted for most of the recent increase in enrollment numbers. Most of them are adult wage earners seeking higher income and better jobs.

University for All Program (PROUNI)

Created in 2005, PROUNI grants exemption from certain federal taxes on revenue from undergraduate programs to higher education institutions that give low-income students a certain number of scholarships to undergraduate programs and related courses. By granting tax exemption to for-profit institutions, PROUNI also played a major role in boosting the growth of, and private investment in, the higher education industry and allowing for-profit institutions to offer courses at competitive prices in comparison to those charged by philanthropic and not-for-profit institutions.

The chart below shows the rise in the number of scholarships granted by PROUNI between 2006 and 2014, in addition to the growth of the program and the increase in tax incentives granted by the government.

Source: MEC.

For further information about PROUNI, please refer to the section "7.5. Describe the relevant effects of state regulation on the issuer‘s activities, specifically commenting on: - a. The need for governmental permits for the performance of activities and the history of the relationships with the public authorities granting such permits - University for all Program - PROUNI" of the Reference Form.

Financing Fund for Higher Education Students (FIES)

FIES was created in 1999 and offers financial aid of up to 100% of monthly tuition fees charged by private higher education institutions participating in the program and receiving positive MEC ratings.

The chart below shows the number of loans granted through FIES grew sharply from 2008 to 2016.

Source: INEP/MEC

For further information about FIES, please refer to the section "7.5. Describe the relevant effects of state regulation on the issuer‘s activities, specifically commenting on: - a. The need for governmental permits for the performance of activities and the history of the relationships with the public authorities granting such permits - Financing Fund for Higher Education Students - FIES" of this Reference Form.

Changes in FIES

The rules for the FIES program were recently changed, in order to offer additional benefits and make the program even more attractive for students, particularly those who plan to become professors and doctors. The main changes were:

  1. Interest rates fell from 6.5% to 3.4% per year, capitalized on a monthly basis at a rate of 0.27901%;
  2. Teachers and doctors who choose to work in the public sector (in elementary education and in areas determined by the Ministry of Health, respectively) after graduation are entitled to a 1% rebate per month in their debts;
  3. Students have longer repayment terms, which increased from twice to three times the duration of their programs;
  4. The following students may apply for FIES loans without a guarantor: (i) students from teaching programs; (ii) students with monthly gross household income per capita of up to one and a half Brazilian minimum salaries; or (iii) students with partial PROUNI scholarships. To that end, a Guarantor Fund was created so those students no longer need a guarantor or surety fund;
  5. As of 2011, freshmen must take the ENEM [Exame Nacional do Ensino Médio, or Brazilian National Secondary Education Examination]; and
  6. Financial aid may cover 50% to 100% of monthly tuition fees.

Administrative Rules Issued by the Ministry of Education between 2014 and 2015

At the close of 2014, there were uncertainties regarding the regulatory framework for the education industry, especially in relation to the FIES, due to the announcement of new measures by the MEC.

Among those measures, it is worth noting Administrative Rule 21, dated December 26, 2014, which requires students to have an average score equal to or greater than 450 points on ENEM to be eligible for financial aid, a requirement that did not exist previously. In addition, Administrative Rule 23, dated December 29, 2014, changed the FIES payment method for controlling institutions with 20 thousand or more enrolled students benefited by the program. Now the total payment is made in up to 8 annual installments, with a minimum interval of 45 days. Subsequently, Administrative Rule 2, dated February 20, 2015, states that the change in the payment schedule announced by Administrative Rule 23 would apply to 2015 only; as a result, the usual monthly payments will be resumed in 2016.

After April 2015, the Brazilian Federal Government issued other Administrative Rules and Announcements establishing limits for the total number of new FIES contracts to be offered to students, as well as criteria for distributing those places. Under the new criteria, new contracts mainly go to educational institutions offering programs rated 4 and 5; the North, Northeast and Midwest Regions; and teaching, health and engineering programs. The new rules also establish income-based criteria. Financial aid for students with household income of up to 2.5 Brazilian minimum still cover 100% of monthly tuition fees whereas those from higher income brackets now have partial financial aid. In addition, the interest rate for new contracts rose from 3.4% p.a. to 6.5% p.a. As a result, the number of new FIES contracts signed with the higher education sector as a whole fell from 732 thousand in 2014 to 243 thousand in 2015.

Em 3 de fevereiro de 2016 fevereiro de 2016 assinamos um acordo com o governo prevendo que as mensalidades de FIES referentes às competências não pagas de 2015, serão quitadas nos próximos 3 anos, sendo 25% do saldo até junho de 2016, 25% até junho de 2017, e os 50% remanescentes até junho de 2018. O acordo estabelece ainda que os saldos a receber sejam corrigidos pela inflação (IPCA).

North and Northeast Regions

The growth potential is even greater in Brazil’s North and Northeast Regions. That is because the number of enrolled students between ages 18 and 24 is higher in socially and economically underprivileged regions, in spite of persistent regional gaps, according to the 2011 census. For instance, the percentage of enrolled students is rising in the North and Northeast even though only 11.9% below the Brazilian national average of young people from those regions in that age group have a high school or equivalent certificate.

The MEC attributes that increase to the introduction of government programs such as PROUNI and FIES, which effectively helped boost enrollment in private institutions

The chart below, containing official data for higher education in Brazil over the last five years, shows the North and Northeast Regions recorded the highest percentage increases in the number of enrolled students

Region 2012 2016 CAGR
Brazil 7,037 8,052 3.6%%
North 546 655 4.7%
Northeast 1,434 1,704 5.1%
South 1,163 1,327 3.0%
Southeast 3,226 3,612 3.0%%
Midwest 666 752 3.4%

Another major indicator that the North and Northeast Regions provide the best investment opportunities is the fact that the highest number of enrollments in the Midwest, North and Northeast Regions is recorded in state capitals, mainly in the North Region.

Those data indicate that the higher education market still has a great growth potential in Brazil, mainly in the North and Northeast Regions, even though it has grown so much in recent decades. That is because the higher education industry can benefit from the public funding policies in force, the higher number of young people graduating from high school and Brazil’s economic growth, which will boost the demand for skilled labor in the coming years.