SAO PAULO, Sept 26 (Reuters) - Brazil’s No. 1 for-profit education firm Kroton Educacional estimates default rates on government backed student loans could reach 30 percent, as swathes of students graduate amid the country’s worst recession in 80 years, an executive said.
Carlos Lazar, director of investor relations at Kroton, said the number of students graduating would rise sharply toward 2018 as people who took up for the loans, known as Fies, complete their college programs -- which typically last four or five years.
The government has said that the number of students with Fies loans rose almost 10-fold between 2010 and 2014 to a record 732,000 contracts a year. The growth subsided in 2015 at the start of ex-President Dilma Rousseff’s second term as the economy slid into recession.
A sharp rise in delinquencies could call into question the current model of Fies funding, at a time when companies and the government are working to improve the model for Brazil’s for-profit education sector, one of the largest in the world.
As a result of the harsh economic downturn, student loan delinquencies should rise through the end of 2016 and stabilize next year, Kroton’s Lazar said.
Brazil’s $2 trillion economy - the ninth largest in the world - is expected to return to tepid growth next year. However, a fall in unemployment, running at more than 11 percent, is expected to lag an eventual return to growth.
Under the Fies rules, students should start repaying the principal on their loans 18 months after graduation.
“I believe defaults will rise in 2016 and stabilize from the second half of next year,” Lazar said. “We estimate 20 to 30 percent of Fies loan defaults after graduation.”
The government has said general Fies delinquencies are running at only 3.5 percent of total loans, according to a statement sent to Reuters.
However, a new government, which took office after Rousseff was dismissed from office last month on charges of breaking budget rules, is reviewing the default data.
Since Rousseff’s ouster, the new government “found discrepancies in Fies default data for students who are amortizing their loans,” the Ministry of Education said in a statement.
Nearly a fourth of Kroton’s graduate student base is financed through the Fies, or 216,000 students. Next year, Kroton and a bank will offer private loans as an alternative to the Fies, Lazar said, declining to provide any further details.
Education firms are liable for about 1.5 percent of a defaulted loan and are required to set aside 5.63 percent of the value of the loan against default into a government-managed fund known as FGEDUC.
The government budgeted 18.7 billion reais ($5.77 billion) for the Fies program this year and the FGEDUC has about 4.4 billion reais in assets.
Some analysts have questioned the social benefits of Fies, asking whether pumping money into the system was by itself enough to improve education in Brazil. ($1 = 3.2420 Brazilian reais) (Reporting by Ana Mano; Editing by Sandra Maler)