August 24, 2017 / 6:35 PM / 2 years ago

Brazil colleges seek softer cuts to state loan subsidies plan

SAO PAULO, Aug 24 (Reuters) - Brazilian for-profit education companies are asking lawmakers to soften planned cuts and restrictions in a government program for student loan subsidies that has helped widen the federal budget deficit in recent years.

Rodrigo Capelato, president of a lobbying group known as Semesp, said the government had delayed the presentation of a formal plan for the Fies program, fanning uncertainty over the fate of state subsidies for student loans.

Other groups wonder whether the government will be able to revamp the program before year-end, which could slow student enrollments for the upcoming school year. In July, Education Minister José Mendonça Filho announced a first phase of the Fies overhaul, in which the government will transfer some loan credit risk to private-sector colleges.

“It’s so unclear what Fies will look like next year,” Capelato said. In 2018, Brazilians will elect a new president and replace part of Congress, making Fies a hot-button issue.

Unlike other countries with similar programs, Brazil’s National Treasury bore the brunt of student default risk, costing taxpayers about 32 billion reais ($10.2 billion) last year. That was 11 times higher than in 2011, government estimates released in July showed.

Investors in listed companies like Kroton Educacional SA and Estácio Participações SA use Fies to attract more students. Their dependence on the program increased in recent years as it became an important source of their revenue.

Lobbyists have proposed more than 280 amendments to a draft bill regulating Fies, said a person with direct knowledge of the matter. They range from the inclusion of licensures in the program to the use of compulsory deposits and other funds to finance subsidies.

Default rates under the prior structure of Fies neared 47 percent at the end of last year, compared with a government target of 10 percent, according to government estimates.

Since its creation in 1999, Fies has contracted more than 2.3 million subsidized loans.

The government plans to offer at least 300,000 Fies loan contracts per year from 2018 under the new rules, and will not entirely remove subsidies. As many as 100,000 loans will have zero interest.

This year, about 225,000 loan contracts will be offered through Fies.

$1 = 3.1334 reais Writing and additional reporting by Guillermo Parra-Bernal; Editing by Lisa Von Ahn

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