Mercado de Ensino

Mercado de Ensino

Industry Overview

According to MEC/INEP, Brazil was the world’s fifth largest postsecondary education market and the largest post-secondary education market in Latin America, with approximately 8.0 million enrollments in 2015.

Despite recent growth, according to the PNE (Educational National Plan) online platform1, only 18.1% of Brazil’s 18 to 24 year old population was enrolled in post-secondary education institutions in 2015. This rate is significantly lower than the 33% target established by the Brazilian government for 2024, evidencing the Brazilian post-secondary education industry’s potential for continued growth.

The Brazilian education industry is highly important to supporting the country’s growing economy, due largely to the size of the country’s population. According to MEC/INEP Education Census figures, in 2015, Brazil had a total of 48.8 million enrollments in all levels of education, including pre-school, elementary, secondary, professional education and basic education for young people and adults. Of this total amount, 27.9 million were primary education enrollments, 8.0 million were secondary education enrollments and 7.9 million were pre-school enrollments, which are the three largest education sectors in the Brazilian market.

Also according to MEC/INEP, the private on-campus segment posted annual compound growth of 7.9% between 1998 and 2015, raising its market share from 62.1% to 72.5%. In the same period the public segment recorded growth of 4.9% and its market share shrank from 37.9% to 27.5%. The graphs below show, respectively: (i) growth in the number of on-campus enrollments in the public and private segments; and (ii) the share of each segment in the total number of on-campus enrollments between 1998 and 2015.

One of the key drivers of this growth was the overhaul of the industry regulatory framework during the 1990s. Prior to 1996, Brazil’s post-secondary education sector faced regulatory constraints that hindered growth in the offering of post-secondary education by private sector institutions, notwithstanding the lack of government investment across the industry’s various education levels. Following the enactment of the Lei de Diretrizes e Bases da Educação Nacional (Brazilian Basic Framework Law for National Education), or LDB, in December 1996, a number of measures were adopted in order to encourage private sector investment in Brazil’s post-secondary education, including loosening the regulatory restrictions on the opening of new courses and institutions and regulation of the law allowing post-secondary institutions to be constituted as for-profit companies.

Unlike in primary education, the Brazilian post-secondary education market is dominated by private institutions, which are able to meet the demand for post-secondary programs that is not met by public institutions. While public post-secondary education institutions focus on serving as centers of excellence and research, with highly competitive admission standards and a limited capacity to expand, private sector postsecondary education institutions focus their attention on meeting the professional demands imposed by the labor market and on developing flexible programs to meet the needs of workers.

¹ http://www.observatoriodopne.org.br/metas-pne/12-ensino-superior/indicadores

Drivers of growth in education industry

There are four main drivers of growth in Brazil’s education industry:

Distance Learning

Distance learning provides an opportunity to increase penetration of the post-secondary education sector in Brazil. The lower monthly tuition for distance learning substantially increases the number of students who can afford to enroll in post-secondary education programs.

According to a survey by the Associação Brasileira de Educação a Distância (the Brazilian Distance Learning Education Association), or ABED, there were approximately 5.0 million students enrolled in distance learning programs in Brazil in 2015.

According to data published by MEC/INEP Distance Learning was the type of education that most grew in the higher education segment, with a composite annual growth rate of 32.0% in the period between 2003 and 2015, when there were approximately 1.4 million students enrolled in distance higher education courses in the country.

Increase in Financial Aid Alternative for Students

The increase in financial aid alternatives for students coupled with the growth in the number of institutions and post-secondary education programs targeting the middle- and low-income population represents an opportunity for growth in the number of students enrolled in post-secondary education in Brazil.

In an effort to stimulate the education industry in Brazil, some of the financial aid alternatives entail fiscal and financial incentives for those education institutions that have students enrolled in the Brazilian government’s programs.

Access to this financial aid has meant that students from middle- and low-income families, which historically did not have access to post-secondary education, have largely driven the increase in student enrollment numbers. This group of students is comprised mainly of young working adults seeking better salaries and employment opportunities.

Programa Universidade para Todos (PROUNI – University for All Program)

PROUNI is a tax benefit program established by Provisional Measure 213, dated September 10, 2004, later transformed into Law 11,096, dated January 13, 2005, exempts certain federal taxes to post-secondary education institutions that grant scholarships to low-income students enrolled in traditional undergraduate courses and in technical associate programs. By granting fiscal exemptions to for-profit institutions, PROUNI has also played an important role in driving growth and private investment in the Brazilian post-secondary education sector.

Private post-secondary education institutions can join PROUNI by signing a 10-year membership term, which can be renewable for another 10 years. This membership term should estimate the number of scholarships to be offered in each program, campus and course, and a percentage of scholarships for post-secondary education courses that will be offered to indigenous and Afro-Brazilians. To join PROUNI, an education institution must:

  • be up-to-date with their tax obligations; and
  • meet the following requirements: (i) offer at least one full scholarship for every 10.7 regular fee-paying students duly enrolled at the end of the previous academic year, excluding full scholarships granted by PROUNI or by the institution; or (ii) offer a full scholarship for every 22 regular fee-paying students enrolled in traditional undergraduate and associate programs, as long as they also offer 50% or 25% of scholarships that add up to a total amount equal to 8.5% of the institution’s annual revenue of regular fee-paying students enrolled in traditional undergraduate courses and technical associate programs in any given academic year.

The ratio between the number of scholarships and the regular fee-paying students should be verified annually. If this ratio is not met in any given academic year due to students exiting the institution, the number of scholarships must be proportionately adjusted in the following academic year.

According to Normative Instruction SRF 456, dated October 5, 2004, a private post-secondary education institutions that joins PROUNI are exempt, throughout the entire period they participate in the program, from the following taxes:

  • income taxes, including IRPJ (Corporate Income Tax), and CSLL (Social Contribution Tax on Net Income), on the net revenue proportional to the revenues from undergraduate courses and sequential courses of specific educational programs; and
  • income taxes, including the Cofins (Social Security Financing Tax on Gross Revenue), and PIS (Social Contribution Tax on Gross Revenue), on the revenue from traditional undergraduate courses and associate technical programs.

If a post-secondary education institution requests its exclusion from PROUNI, the tax exemptions will be suspended from the date of such request and will no longer be applicable for the entire calculation base period.

We are a PROUNI-accredited institution and, therefore, we are entitled to such benefits.

Programa de Financiamento Estudantil (FIES – Student Financing Program)

The Student Financing Program, or FIES, is a MEC program and was established by Law 10,260, dated July 12, 2001, to offer financing for students who cannot afford the full cost of their tuition. Caixa Econômica Federal and Banco do Brasil are the financial agents for the Program, which is operated by the National Fund for Education Development (FNDE).

In order to receive the benefits of FIES, university entrants must be regularly enrolled in on-campus courses of a FIES-registered private post-secondary education institution with a positive MEC evaluation and entrants must have obtained a score higher than 450 points in the National High School Examination Test (ENEM), without having zeroed on the essay of such exam (this rule came into effect in April 2015 for university entrants who graduated high school before 2010, and, in 2016, became valid for all high school graduates). In addition, the following rules were also applied: (i) students who have already received FIES loan will not be able to apply for a new one; (ii) students who have an undergraduate degree may not apply for a FIES loan; (iii) students benefiting from a full PROUNI scholarship may not participate in the FIES program; students applying for FIES must have a gross monthly per capita household income of up to 2.5 minimum wages. The FIES interest rate is 6.5% p.a. and the loan payment period is three times the duration of their course.

As of 2015, the amount of granted FIES loans began to have certain limits, among them

  1. A higher amount of FIES grants will be given to courses which have achieved scores 5 and 4 in the National Evaluation System for Post-Secondary Education (SINAES);
  2. Engineering, teacher training (license and degrees) and health courses are given priority when determining the amount of FIES grants;
  3. Courses offered in the North, Northeast and Mid-West regions (except for the Federal District) are given priority;
  4. Participating institutions must grant a 5% discount on the monthly tuition fee for FIES students.

Programa Nacional de Acesso ao Ensino Técnico e Emprego – Pronatec (National Program of Access to Technical Education and Employment)

The National Program of Access to Technical Education and Employment (“Pronatec”) was established by Federal Law 12,513, dated October 26, 2011 and is aimed at increasing the amount of vocational and technical courses offered, in order to: (i) expand, internalize and democratize the offering of technical vocational courses in high schools, initial training courses and continuous professional on-campus education and distance learning; (ii) build, reform and expand public state schools that offer professional and technical education programs; (iii) increase educational opportunities for workers through initial and continuous training or vocational qualifications; (iv) increase the amount of pedagogical resources to support the supply of vocational and technical education; and (v) improve the overall quality of high school education.

The Pronatec program involves a set of initiatives, including Bolsa-Formação, which offers, free of charge, subsequent technical courses for students who have completed high school. Under Pronatec, (i) students will not receive transportation or food assistance; (ii) students are not allowed to change courses or course periods during the enrollment confirmation process; and (iii) a student‘s registration will be canceled if he/she does not comply with the conditions established in the Public Notice.

We adhered to Pronatec in 2014, however, it should be noted that there was a significant reduction in the number of spots offered in 2015 and the program was discontinued in 2016.

Lançamento do Parcelamento Estácio – PAR (Launching of Estacio’s Installment Program)

Since the beginning of 2017, students who enroll at Estácio have a new facility for the payment of their tuition fees: Parcelamento Estácio, or PAR, which allows the student to pay half of their course’s tuition while studying and the other half after graduation. The installments are progressively divided, starting with payment of 30% of the monthly tuition during the first two semesters; then payment of 40% of the monthly tuition during the third semester, followed by payment of 50% of the monthly tuition in the fourth semester and payment of 60% of the monthly tuition starting from the fifth semester onward.

Recent changes

The FIES rules changed recently in order to offer more advantages and make the program even more attractive to students, especially those who plan to become teachers or doctors. The main changes are listed below:

1. A reduction in interest rates from 6.5% to 3.4% p.a., with monthly capitalization of 0.27901%;
2. A 1% reduction per month in the amount of debt for teachers and doctors who opt to work in the public sector after graduation (teachers in basic public education and doctors in areas determined by the Ministry of Health);
3. Increase in terms. Students currently have three times the duration of their course to pay off their loan, as opposed to two times previously.
4. The possibility of receiving a FIES loan without the need for a guarantor in the case of licenciate degree students, students with a gross monthly per capita household income of up to 1.5 minimum wages, or students receiving 50% scholarships from PROUNI. The Guarantee Fund was created to allow students to obtain loans with no guarantor or joint guarantee.
5. As of 2011, university entrants must have participated in the ENEM (National High School Exam).
6. Financing percentages varying between 50% and 100%.

We believe that these changes increased the number of enrollments at institutions offering undergraduate programs due to the improved conditions for those students who are unable to afford their education costs. Lower interest rates, coupled with longer loan repayment terms, are expected to produce an increase in student enrollments, benefiting the industry as a whole. Additionally, the government is setting up a fund to guarantee student loans, which will eliminate the need for students to get a surety for their loans, and will make the program even more attractive.

Expansion of the Segment Made Up of Working Students

The prospect of professional growth and significant salary increase for high school graduates are two central factors associated with the expansion of the Brazilian post-secondary education sector. Brazil is one of the countries in which having a post-secondary education degree results in one of the largest salary differences in the world and, according to the latest data released by the 2013 IBGE Census, Brazilians with a post-secondary degree receive, on average, 209.8% higher wages.

We expect that the increase in the number of students who work during the day and study at night should continue to drive the sector’s growth. In 2015, 4.1 million students enrolled in post-secondary courses offered at night, representing 62.1% of enrollments in 2015, according to data from MEC/INEP 2015.

We expect the number of enrollments in post-secondary education institutions in Brazil to continue to grow as a result of certain factors, including: (i) the prospect of professional growth; (ii) the significant increase in individual income of those holding a post-secondary education degree; and (iii) the substantial increasing demand for skilled workers which is still unmet.

Consolidation

In 2015, the general overview of the private post-secondary education sector in Brazil was as follows: the top 20 consolidation groups accounted for 48.4% of student enrollment in the segment and accounted for approximately 2.9 million enrolled students; while the remaining 51.6% of enrollments were distributed in 1,610 private institutions which had approximately 3.1 million enrolled students, according to MEC/INEP 2015 data.

Despite the significant fragmentation of the Brazilian education sector, in recent years, through successive mergers and acquisitions of the consolidation groups, it is possible to observe a somewhat less fragmented scenario and high enrollment concentrations in large groups. However, there is still plenty of opportunity to gain market share and consolidation through additional merger and acquisition transactions.

Competition between private post-secondary education institutions can undergo significant changes, as new elements are included in the competitive landscape, including the competitive advantages that larger institutions have in comparison to smaller ones. These benefits include gains in scale and cost reduction from operational and administrative centralization, increased access to capital to finance investments, and a greater ability to attract talents for both faculty and students.

Competition

Brazil’s post-secondary education sector is fragmented and its competitors can be found in all localities. We believe that the factors that influence competition in the post-secondary education market include competitive prices, educational experience, the institution’s tradition, qualified faculty, well-structured facilities, strategic location, diversified course portfolio, among others. Due to the sector fragmentation, we face different levels of competition, depending on our units’ location. In accordance with MEC/INEP, there were 2,068 private post-secondary education institutions in Brazil in 2015, 22.1% of which belonging to groups driving industry consolidation.

We compete directly with for-profit and nonprofit post-secondary education institutions and with alternatives to post-secondary education. Smaller private institutions, usually those with one unit only, have less ability to attract and maintain experienced faculty and management. They also have limited resources to open new units, develop and provide quality education services, and design courses that attract students’ interest. However, in accordance with INEP 2015 data, Estácio was the second largest private post-secondary education group in terms of on-campus and distance-learning enrollments.

Company’s market share

The chart below shows the volume of students enrolled in Brazil’s main private institutions and groups driving industry consolidation.

Volume of Students Enrolled in Brazil’s Main Private Institutions and Groups Driving Industry Consolidation
(On-campus and distance learning)
(Number of students – ‘000 students)

The table below shows the Company’s market share per location based on the number of students entering post-secondary private institutions in each location cited in 2015.