U.S. For-Profits in Brazil

Amid enrollment and revenue declines at home, American for-profit education companies have looked abroad, including to Brazil. But can -- and should -- Brazil's boom in proprietary education continue?

June 16, 2015
DeVry Education Group
A DeVry University campus in Brazil

Business is booming in Brazil for DeVry Education Group, an Illinois-based, publicly traded for-profit education company.

DeVry reports that it enrolls more than 58,000 degree-seeking students in Brazil, plus another 53,000 students in test preparatory programs there. According to the company’s latest earnings report, released in April, revenue for DeVry’s Brazil division grew by 38.8 percent over the previous year, while it declined by 15.7 percent for the flagship DeVry University campuses located across the U.S. The company is shutting down 14 of its U.S. campuses.

As U.S.-based for-profit education companies continue to face stricter regulations and slumping enrollments and revenues at home, some are venturing abroad in the name of diversification, with Brazil being a main destination.

“It represents a growth area and it also represents an escape from the regulatory environment in the U.S. that has proven so difficult for for-profits to adjust to,” said Kevin Kinser, the chair of the department of educational administration and policy studies at the State University of New York at Albany and an expert on for-profit higher education.

Kinser said he's struck by the ways in which the for-profit higher education industry in Brazil resembles that of the U.S. a decade ago. “The idea that for-profits are an innovative way of giving access to populations, that there is a very encouraging policy environment in terms of providing different forms of federal aid for students, that kind of excitement and enthusiasm, [the sense that] this is a growth industry, reminds me a lot of what we saw here 8 or 10 years ago,” he said.

“There’s also a sense that things might not be able to keep going,” Kinser continued -- a sense of, “wait a minute. Is this really how we want to spend our public money? Is the expense of education something that we need to get our heads around? What sort of loan returns are we getting? Some of those questions are beginning to be asked in Brazil.”

Balancing Access and Quality

The for-profit sector is a much bigger part of the higher education system in Brazil than it ever was in the U.S.

An analysis by Dante J. Salto published in the journal International Higher Education says that Brazil’s for-profit colleges enroll about a third of all students in higher education. The for-profit sector, which predominantly enrolls students in social science, business, law, education and health care-related fields, absorbs demand that the public higher education system lacks the capacity to meet, and is seen as an important player in helping Brazil move toward its policy goal of dramatically increasing higher education participation rates. The proportion of Brazilian 18- to 24-year-olds enrolled in higher education (the country's net enrollment rate) is only in the teens, while the gross enrollment rate, which takes into account students of all ages, stands at around 30 percent.

Describing the evolution of the higher education landscape in Brazil, Simon Schwartzman, a senior researcher at the Institute for Studies on Labor and Society, in Rio de Janeiro, and the author of several books on education in Latin America (and an Inside Higher Ed blogger), noted that the relatively small public sector attracts the country’s top students. Meanwhile, the private sector -- which between not-for-profit and for-profit institutions enrolls about three-quarters of students in Brazil -- has expanded to accommodate those who can’t get into the public universities. Legislation in the 1990s allowed private universities to declare themselves for-profit -- before that they technically couldn’t be -- and the growth of the sector since then has been fueled by governmental programs. These include PROUNI, which offers tax breaks to institutions enrolling low-income students on scholarships, and a subsidized federal loan system known as FIES.

But with Brazil’s economy in the midst of an economic downturn, the government announced changes last winter to cut back on the FIES loan program and impose stricter eligibility requirements. Schwartzman said the changes have dampened expectations for the continued growth of for-profit colleges. “The idea that enrollment will continue to expand and it will be subsidized… this equation doesn’t work anymore,” he said, adding that he expects enrollments will be stagnant over the next few years.

Others are optimistic about continued growth. The largest for-profit education company in Brazil, Kroton, which enrolls more than a million undergraduates, created its own private loan system for students ineligible for FIES and reported continued growth in its undergraduate student population (up 7 percent) in its most recent quarterly report, released in May. “Even with this restriction, with this, let’s say, not clear regulatory framework, we are planning to open 100 new campuses in the next five years; we have 130 today,” said Carlos Lazar, the company’s investor relations officer.

“We are going to be almost doubling the number of campuses that we have in the country. Additionally we’re also going to be opening more than 448 new distance learning centers. We have today 726.”

Mohammed Khan, senior global education specialist for the International Finance Corporation, the division of the World Bank that focuses on private sector development, said he thinks the changes to the FIES loan system will ultimately serve to separate the higher-quality players from the rest. “The government’s aim is not to cut access but to balance promotion of access with promotion of quality,” Khan said. “They don’t want to be in a situation where the private sector is running amok” -- where it is endlessly enrolling students who are subsidized by loans but don’t have the ability to complete their degrees.

Long-term, Khan expects growth to continue. “In a country with 196 million people with a 30 percent gross enrollment rate, you can see there’s huge opportunity, huge demand. The economy will bounce back at some point and begin to grow again.”

Brazil and Beyond

DeVry, which first entered Brazil in 2009, has since expanded its network in the country to encompass 11 institutions, including 5 acquired or established since 2014. But the company, which also operates two medical institutions primarily serving North American students in the Caribbean, is looking beyond Brazil. Steven Riehs, the president of professional and international education, said DeVry has nine countries on its target list: in Latin America, Colombia, Mexico and Peru; in Asia, Malaysia, Singapore, Thailand and Vietnam; in the Middle East, Saudi Arabia.

“We want a regulatory, political environment that we believe we can be successful in, that has clear criteria supportive of private education,” Riehs said. “We also look at the demand and the supply.”

The emergence of the middle class is another variable, Riehs said. “Everybody puts discretionary income toward education.”

The largest for-profit higher education company in the U.S., Apollo Education Group, also has been looking to expand abroad during a time in which enrollments at its flagship institution, the University of Phoenix, have declined from a high of 475,000 in 2010 to 213,800 this spring. “Global is the cornerstone of our diversification strategy,” said Mark Brenner, Apollo's senior vice president for external affairs.

Apollo’s global subsidiary, which includes institutions in Australia, Brazil, Chile, India, Mexico, South Africa and the United Kingdom, earned $81 million in revenue in the second quarter of this year, an 18 percent increase over the year prior, while having an operating loss of $27 million -- which Brenner attributed to investments the company is making overseas. “At the end of the day, we’re in a growth mode with Apollo Global and believe that investing in new programs and new schools that serve students globally is a long-term strong strategy for Apollo. So, you’re seeing the growth and you’re seeing us invest dollars into new programs in existing schools and into new regions.” Apollo’s biggest overseas unit is BPP, in the U.K., while its most recent acquisition, FAEL, is in Brazil.

Brazil is also the biggest single market for Laureate Education, a private education company with campuses in about 30 countries. Laureate reports that it enrolls about 200,000 students in Brazil. Unlike Apollo and DeVry, which even with their recent international expansions still derive the vast majority of their revenue from U.S. sources (86 and 76 percent respectively), Laureate has always had the bulk of its business overseas, with about 60 percent of its revenue coming from Latin America, 15 percent each from the U.S. and Europe, and 10 percent from Africa, Asia and the Middle East.

Laureate's general approach has been to acquire and partner with institutions in countries that lack sufficient higher education capacity. “What an institution like Laureate does is to enhance the human capital of individuals, the human capital of communities, the human capital of countries and, in doing that, the capacity of people, the capacity of communities, the capacity of countries to generate income and wealth and therefore well-being is enhanced,” said Ernesto Zedillo, the former president of Mexico and the recently appointed presidential counselor for Laureate (Zedillo recently replaced former U.S. President Bill Clinton, who for five years was Laureate's honorary chancellor).

Holders of higher education degrees in Brazil earn more than 2.5 times more than their counterparts with upper-secondary educations, a figure that's considerably higher than the average 1.6 times wage differential across Organization for Economic Cooperation and Development countries. Yet some question whether the expansion of for-profit education is the best way for countries with underdeveloped higher education systems like Brazil to achieve goals related to access and economic equity.

“Supporters of the trend towards more for-profit universities like to claim that this sector expands access. This may be true to some extent, but access to what?” Liz Reisberg, an international education consultant, wrote in an October “World View” blog post published by Inside Higher Ed. “For-profit higher education has the primary objective (of course) of generating profit.”

Marcelo Knobel, a professor of physics at the University of Campinas, in the state of São Paulo, and another Inside Higher Ed “World View” blogger, said that the expansion of the for-profit sector in Brazil has increased inclusion, yes, but “it is a second-class social inclusion, I would say, with poorer quality of programs.”

“We have still huge room to grow [enrollment], but the problem is how to reach this goal. Is it continuing to subsidize and to pay the private, for-profit companies or is it to expand public or private, not-for-profit colleges? This is a big, big discussion that is going on here in Brazil.” A problem, he said, is that the country’s public sector is undifferentiated and oriented around research universities, which are both expensive to operate and also free for students to attend.

On the one hand, Knobel said policies supporting the growth of for-profit colleges in Brazil have been important in increasing access in the short-term. “For these students who attend these courses, this has made a huge difference in their lives, because here in Brazil a higher education degree matters a lot,” Knobel said. But he wishes that the government would make parallel investments in the development of a vaster and more differentiated public higher education system. Imagine, he said, if some of the sums used for the PROUNI and FIES programs were devoted to establishing new teaching-focused universities or community colleges.

“We should try to make this happen,” he said, suggesting that without those kinds of investments Brazil will never shake its deep dependence on the for-profit education companies. “Otherwise, there’s no way out.”


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