UPDATE 1-Brazil limits Fies student loan program to improve finances

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SAO PAULO, Feb 6 (Reuters) - Brazil’s Education Ministry has vowed to cut subsidies to a federal student loan program known as Fies as the government seeks to make it fiscally sustainable over the long run.

The government will reduce the ceiling for Fies loans to 30,000 reais ($9,635) per student per semester, down from 42,000 reais, Education Minister José Mendonça Bezerra Filho said in a statement with Mansueto de Almeida Junior, economics affairs secretary at the Finance Ministry.

The annual budget for the Fies program is 20 billion reais ($6.42 billion), the officials said.

However, the “fiscal cost” associated with the Fies is 9 billion reais a year, or nearly half of the budgeted amount, representing costs incurred from subsidized interest rates and delinquency-related losses, the officials said.

The government estimates about 30 percent of the students have defaulted on their Fies loans.

That level could be even higher as students enrolled in 2014, when the number of Fies contracts peaked to 731,000 contracts, will only start repaying their loans in 2018, the officials said in a press conference in Brasília.

Currently, there are 2.5 million active Fies contracts, according to Education Ministry data.

The Education Ministry has pledged to offer some 150,000 new Fies contracts for students enrolling in the first semester of 2017, the officials said. This is roughly the same as in the first half of 2016, they said.

“This is bad news for the sector,” said an executive at one of Brazil’s for-profit education firms, who is concerned the government will not meet its goal of extending 150,000 new loans.

Last year, the government of former President Dilma Rousseff said it would offer 250,000 Fies loans in the first semester, but only 150,000 students actually received the credit.

Other measures to reform the Fies program will be announced by end-March, the officials said.

$1 = 3.1137 reais Reporting by Cesar Raizer; Writing by Ana Mano; Editing by Daniel Flynn and Cynthia Osterman