Sectoral Analysis

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Overview of the Higher Education Industry


In 2016, Brazil was the fifth largest higher education market worldwide and the largest higher education market in Latin America, with approximately 8.0 million enrolled students, according to MEC/INEP. 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. The higher education courses are divided into: (i) undergraduate programs, for students who have a high school or equivalent certificate and are approved in a selection process; (ii) graduate programs, which comprises 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, offered to students who meet the specific requirements the educational institution establishes for each of them.

In 2016, there were 2,364 higher education institutions in Brazil, according to the 2015 Higher Education Census published by the Ministry of Education. Approximately 25% of all enrolled students in 2015 went to public education institutions whereas 75% went to private education institutions. From 2012 to 2016, private higher education institutions increased their on-campus and distance-learning student base by 18% in undergraduate programs, going from approximately 5.1 million students in 2005 to 6.1 million students in 2015, according to the Ministry of Education.

In the last 10 years, higher education has been consolidating itself as an attractive market for investments. Official data from the Higher Education Census, released by INEP in 2019, show that Brazil has been registering successive increases in the number of students, with an average increase of 2.8% per year from 2010 to 2019.

Número de matrículas 2010 - 2019 (em milhares)

Fonte: MEC/Inep

Vocational and Professional Education Market

Vocational education prepares students with an elementary school certificate for the job 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 educational curriculum is regulated and accredited by the MEC. Vocational and professional programs have a typical duration of 18 to 36 months.

Distance Learning

Technology has led to major innovations in the education industry and digital content has been increasingly facilitating 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. As young individuals gain access to technological resources and change their habits, these trends gain momentum in the educational industry.

Distance learning provides an opportunity for higher education to increase its penetration in Brazil due to lower tuition fees, and significantly increase in the number of students who can afford to enroll in higher education programs. The distance learning segment offers education through remote learning technologies and tools since professors and students do not engage in direct, person-to-person contact. Distance learning and vocational programs are currently better developed and regulated by the Brazilian Federal Constitution and the Brazilian National Educational Guidance Law, in addition to administrative rules, resolutions and standards issued by the MEC and State Departments of Education (SEED).

Distance learning has a high growth potential since it attracts students who have difficulty in attending on-campus classes due to lack of agenda, unable to take long commutes or who live in isolated areas. 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 illustrates the degree programs that accounted for 20% of all enrollments in on-campus programs in 2019.

Distribuição das Matrículas Por Segmento 2019
Base de alunos de ensino superior

Source: MEC/Inep.

Student Financial Aid

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

Histórico de Alunos Financiados no Brasil

Fonte: INEP / MEC

Aiming to encourage education in the country, certain funding alternatives create fiscal and financial incentives for educational institutions that have students benefiting from government education incentive programs such as PROUNI, FIES and PRONATEC.

Due to such funding programs, the middle and lower income classes of the Brazilian population, which historically has had the greatest difficulty in accessing higher education, was largely responsible for the increase in the student base, mainly comprising by working adults in search of better salaries and job opportunities.

University for All Program ("PROUNI")

Created in 2005, PROUNI provides higher education institutions exemption from certain federal taxes on revenue according to scholarships to undergraduate programs and related courses to low-income students. By granteeing tax exemption to for-profit institutions, PROUNI also played a major role in boosting the growth and private investment in the higher education industry, which enabled for-profit institutions to offer courses at competitive tuition fees in comparison to philanthropic and not-for-profit institutions.

The chart below illustrates the increase in the number of scholarships granted by the PROUNI program from 2010 to 2019, in addition to the program’s growth and the increase in tax incentives granted by the government.

ProUni (Número de bolsas de estudos - em milhares)

Source: MEC/Inep

For further information on 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 this 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 who have been positively ranked by the Ministry of Education.

The chart below illustrates the number of loans granted through FIES from 2010 to 2019.

Histórico de Base de Alunos do FIES

Source: INEP/MEC.

For further information on 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 gain doctorate degrees. The main changes were:

  1. Interest rates fell from 6.5% to 3.4% p.a., capitalized on a monthly basis at a rate of 0.27901%;
  2. Teachers and doctors who choose to work in the public sector after graduating (in elementary education and fields determined by the Ministry of Health) are entitled to a 1% rebate per month in their debts;
  1. Students have longer repayment terms, which increased from twice to three times the duration of their programs;
  1. The following students may apply for FIES loans without a guarantor: (i) students enrolled in teaching programs; (ii) students with a monthly gross household income per capita equal to or less than 1.5 Brazilian minimum salaries; or (iii) students with partial PROUNI scholarships. To that end, a Guarantor Fund was created so these students no longer need a guarantor or surety fund;
  1. As of 2011, freshmen must take the ENEM - National Secondary Education Examination; and
  1. Financial aid may cover 50% to 100% of monthly tuition fees.

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

At the end of 2014, uncertainties arose on the regulatory framework for the education industry, especially in relation to the FIES, due to the announcement of new measures by the Ministry of Education.

Among the measures released, 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 previously exist. In addition, Administrative Rule 23, dated December 29, 2014, changed the FIES payment method for controlling institutions with 20,000 or more students enrolled and benefited by the program. Currently, 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 in 2015 only and, as a result, the normalized monthly payments were 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 offering student positions. Under the new criteria, new contracts mainly go to educational institutions offering programs ranked 4 and 5 (course concept), by the MEC, with priority to be given to the North, Northeast and Midwest regions and the teaching, health and engineering programs. The new rules also establish income criteria. Financial aid for students with household income of up to 2.5 Brazilian minimum wages is still available to cover 100% of monthly tuition fees and students with higher income brackets will only be entitled to partial financial aid. In addition, the interest rate for new contracts increased 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 fell from 732,000 in 2014 to 243,000 in 2015.

On February 3, 2016, we signed an agreement with the government determining that unpaid FIES tuition fees in 2015 will be settled over the next 3 years, with 25% of the outstanding balance by June 2016, 25% by June 2017, and the remaining 50% by June 2018. The agreement also establishes that the receivables are adjusted for inflation (IPCA).

North and Northeast Regions of Brazil

The growth potential for Brazil’s North and Northeast regions is promising. The reason is, according to the 2011 Census, the number of enrolled students aged 18 to 24 is higher in socially and economically underprivileged regions, despite persistent regional gaps. For instance, the student base percentage is increasing in the North and Northeast regions despite only 11.9% of these young individuals have a high school or equivalent certificate, a percentage that is lower than the Brazilian national average for the same age group.

According to the Ministry of Education, this increase is due to the introduction of government programs such as PROUNI and FIES, which effectively helped boost enrollment in private institutions.

The chart below provides official data for higher education in Brazil, illustrating the North, South and Northeast regions of Brazil with the highest percentage increases in the number of enrolled students.

Another relevant data, which also indicates the Northeast and North regions with higher investment opportunities, is the fact that, while the South and Southeast regions have the largest number of enrollments occurring in countryside regions, the Midwest, Northeast and North regions have the largest number of enrollments concentrated in the capital cities, predominantly in the North region.

Distribuição da base de alunos de graduação superior por região

The data above illustrates that, while the higher education sector has greatly expanded over the past decades, a promising growth potential still exists in the country, especially in the Northeast and North regions. This is because this sector can benefit from the current public financing policies, the increase in the number of young individuals completing their high school education and the expected economic growth scenario which will require qualified individuals for the job market in the coming year.

Participation and competition in the higher education market in Brazil

The higher education sector in Brazil is very fragmented and has many competitors in all locations. We believe that factors influencing competition in the higher education market include price, educational experience, institution tradition, faculty, facilities, location and mix of courses, among other factors.

Due to the fragmentation of the sector, we face different levels of competition, depending on the location of our units. According to MEC, in 2017, there were 2,152 private higher education institutions in Brazil. We compete directly with for-profit and non-profit higher education institutions and with alternatives to higher education, such as vocational courses. Smaller private institutions, typically with only one unit, are less able to attract and retain experienced administration and faculty. They also have limited resources to open new units, develop and provide quality education services, and set up courses of interest to students.