The Impact of For-Profit Higher Education on Brazilian Education

For-Profit Higher Education: State Incentives for Its Hegemony

Institutions of for-profit higher education ² (Almeida, 2014) are distinct from those that charge monthly fees but do not return a profit to their owners and their heirs, and therefore they are different from the models of a number of capitalist nations, in which private ownership is not the dominant form (see Bresser Pereira, 2000: 42; Nunes, 2007: 15–16; and Steiner, 2005: 350–351, on this difference). The for-profit sector had lower enrollment than the public sector and the confessional sector linked to religious institutions. ³ Its expansion was stimulated by political interference favorable to privatization interests in the Federal Council of Education (now the National Education Council) and by state financing. The council, created in 1961, issued authorizations to introduce courses and institutions, and most of its advisers were linked to the for-profit private sector. ⁴ The Brazilian state promoted the hegemony of for-profit education primarily by declining to collect taxes from these institutions, which were already acting as companies. Tax exemptions aimed at all school levels were codified in the 1934 Constitution, during the Vargas era, and all educational institutions were exempt from taxes because they were engaged in an activity that was prohibited from making a profit. According to Oliveira (2009: 741), “It was only with the promulgation of the 1988 Constitution that the possibility of the existence of for-profit schools became explicit.” Objectively, tax exemptions constituted a legal instrument of indirect public financing for the for-profit private sector, since in not paying taxes the sector obtained an equity accumulation that other economic sectors were unable to receive (see Carvalho, 2005: 4–7; Cunha, 2004: 801; Davies, 2000: 160; Martins, 2009: 21). In addition, there was direct public financing in the form of National Treasury certificates delivered to private institutions to settle social security debts or through money transferred directly. Public funds were lent to students to pay tuition. Implemented in 1976 by the minister of education of the civil-military dictatorship, Jarbas Passarinho, this was called “educational credit.” In 1999, during the second Cardoso government, it was renamed the Fundo de Financiamento Estudantil (Fund for Student Financing—FIES), but the principle remained the same. In its 23 years of existence (1976–1999), this subsidy program caused billions in losses to the public coffers. The monetary correction of the loans was made at a rate much lower than inflation, and there was a high default rate—in December 2003 more than 80 percent, a debt of R$2.1 billion (Davies, 2000: 172).

During the Cardoso government, the FIES fulfilled its central role of subsidizing private institutions at a time of external crises that caused high unemployment and declining purchasing power (Mexico in 1995, Asia in 1997–1998, Russia in 1998–1999), affecting the middle- and lower-income social classes. During the Lula government and especially that of his successor, Dilma Rousseff, the FIES rules were reformulated (Law 11,552 of 2007) and it acquired significant financial volume. In 2010 the fund cost about R$1 billion, 13.3 percent of spending on public higher education. As of 2010 government spending on the FIES began to grow extremely rapidly, reaching its peak in 2014, when total spending reached R$15.9 billion, more than 12 times the 2010 annual cost. In 2014 public financing expenditures for for-profit institutions were 19 percent greater than the total spent on the federal public network (Burgarelli, 2017). The changes responsible for this situation were made by Minister of Education Fernando Haddad through a loosening of the rules of access ⁵ to the program, with the goal being 10 million students in higher education. This goal was not achieved. Spending R$34 billion on the fund in that four-year period (2010–2013) had little impact on enrollment. Higher-education census data for the period indicate that the number of students benefiting from the FIES rose 448 percent (from 150,000 in 2010 to 827,000 in 2013) while the total number of students in the private network increased by only 13 percent (from 3.9 million to 4.4 million). Private institutions started to encourage their paying students to become beneficiaries of the FIES, thus guaranteeing government transfers without delay or default and avoiding the surprises that the market economy can always generate. Education entrepreneurs sought the government’s safe haven because in Brazil “risk” and “capitalism” are terms that do not easily coexist. With this artifice, in 2013 there were more than 100 institutions, most of which had not existed or had few students in 2010, at which more than 60 percent of the students had their monthly fees financed by the government. In addition, the UNIESP Group, the for-profit higher education network that most relied on state funding, falsified student documentation to receive more from the federal government; students who paid lower tuition were enrolled as if they were taking more expensive courses, and students were told that their tuition was free (the institution paying off the loan itself) and offered gifts for joining the program. Despite all this, the chain obtained R$405 million from the FIES (Burgarelli, 2017: 42–43). Fraud and other subterfuges to circumvent the law have been a constant ever since the time when, already under democratic governments, some form of control of this economic sector was attempted. Although publicly known, these practices did not affect the for-profit private sector because it has, throughout its almost 50 years of existence, had the support of powerful forces that protected its interests whatever the government in power.

The For-Profit Private Sector As a Sociopolitical Actor

Over the decades, given its tax immunity, state financial resources guaranteed through public policies that were favorable to it, and the money obtained through the payment of monthly fees, the for-profit sector acquired substantial economic weight, now on a big-capital scale. With this financial power and the knowledge that the state apparatus, with its legislative and executive powers, could counterbalance its dynamics, the owners of for-profit institutions sought to organize politically in order to curb any attempt at social regulation that might be made against them. The articulation of these private interests took place around associations such as the National Association of Private Universities and the Brazilian Association of Higher-Education Sponsors, seeking to exert pressure through links with political agents in the deliberative arenas of national power (Cunha, 2004; Martins, 2009; Sampaio, 2000). The owners of education companies have connections in all of the political parties to guarantee their dominance. In the legislature there is the Parliamentary Front to Support Private Higher Education, with senators and deputies from both the opposition and the government. In 2008 this front was composed of 171 deputies (out of a total of 513) and 36 senators (out of a total of 81) (Zagonel, 2008). These powers in the economic and political dimension prevent the state from establishing the conditions for regulating the sector in accordance with the constitution, leaving society susceptible to fraud and other machinations by the education companies. Empirical evidence of this is present both in the higher-education evaluation system and in public programs such as the FIES and the University for All Program (ProUni). ⁶

Since the inception of evaluation under the Cardoso government, there has been fraud in the form of not registering the exam scores of groups of students with poor performance. At the beginning of 2012, during the Rousseff government, this fraud was reported at the Universidade Paulista, where only students with good educational performance were registered in order to obtain good positions in the ranking (Pompeu, Lordelo, and Silva, 2012). Saldaña (2012) also pointed to 30 other institutions suspected of inflating exam scores. Legislation for possible sanctions was slow in coming, favoring the institutions that adopted these criminal practices. Furthermore, the fact that the Ministry of Education lacked sufficient human resources to inspect the system put the reliability of evaluative policies at serious risk. The FIES was poorly planned, poorly implemented, and wasteful and has never been effectively controlled. A report by the Federal Court of Auditors (Brasil, 2009) shows that there are very serious problems with the FIES as public policy. It had no performance indicators, no measure of efficiency, and no internal control of risk management. The only measure was how much of its budget was spent. For a long time there were no minimum income requirements for obtaining financing. Despite its being the body that transfers the money, the Ministry of Education does not check applicants’ incomes; this is done by a commission established at each university. With this total lack of state control, the FIES tended toward default. In 2014 47 percent of its contracts in the payment phase were behind in their monthly installments, 24 percent of them by more than a year. As if that were not enough—and this corroborates what I have maintained about the power of the private sector—at the same time that the government increased funding, the average monthly fees were increased. ⁷ Only with the reelection of Dilma Rousseff in 2014, when Joaquim Levy was appointed minister of finance, were restrictive measures taken with regard to FIES spending. ⁸ The unusual thing is that it took a neoliberal manager to put some order into the FIES, and this brings us to the situation of the government of a political group on the left, that of the Partido dos Trabalhadores (Workers’ Party—PT), during which, paradoxically, public policies in favor of the for-profit segment were increasingly adopted.

The Left in Power and Neoliberal Values

The left that came to power in 2003 used rhetoric to defend its actions. For example, the former education minister Haddad said that the FIES was legitimate because it did not interfere with the budget legally earmarked for investment in the federal education network, the 18 percent of public resources derived from tax revenues (Haddad et al., 2004: 20). However, it was a matter of reflecting on what was available to invest, at a time when the federal public network was being expanded by the same government, by giving large tax breaks to for-profit universities, the vast majority of them of poor quality. ⁹ Daniel Cara, coordinator of the National Campaign for the Right to Education, supported the discourse of the left in power, ignoring the way the FIES was structured over time: “Increasing the income ceiling for access to the FIES is a wise policy. Some argue that the program must focus exclusively on low-income students—a mistake. Raising the ceiling is an inclusive measure, since more people can access the FIES” (quoted in Warth, 2016). This was a left that had begun to understand democratization of access as expanding access to higher education, whatever it might be, aiming to achieve the goals of the education plans (which, as usual, had never been achieved). While the quantitative democratization of higher education is undoubtedly necessary, its qualitative democratization calls for reflection on the implications of school trajectories linked to social origin in a country with extreme inequalities (Fernandes, 1966: 123–124). The National Students’ Union, once very opposed to neoliberal policies and an advocate for expanding public university places, has also changed its tune. Under leadership affiliated with the Communist Party of Brazil, it has also used the discourse of “inclusion.” Gustavo Petta, twice president of the union, advocated without success for the for-profit sector under the PT government. With the adaptation to neoliberal values, the defense of the public university vanished from both speech and practice.

Now an alliance with old actors comes into the picture. Two of them deserve to be highlighted because, behind the scenes, they were part of the largest education business in the world, the Kroton-Anhanguera conglomerate. This is the group that received most payments from the federal government in 2010, more than R$20 billion (Burgarelli, 2017: 42). The mergers and acquisitions started in 2005 with the purchase of 51 percent of the Universidade Anhembi Morumbi by the U.S. network Laureate International Universities for R$300 million—an operation assisted by PRS Consultores, founded by the former education minister Paulo Renato de Souza. In this transaction, the owner of the university, Gabriel Mário Rodrigues, a key figure in the for-profit private sector (president of the Union of Sponsors of Higher Education of São Paulo for 12 years and chair of the Brazilian Association of Higher-Education Sponsors), was among those who made the most money from education in the past decade. It is so easy to make money from higher education in Brazil that the sector has become consolidated. Rodrigues bought a 50 percent stake in the Anhanguera chain, which went public in 2007 and became one of the five largest education groups in the world. In 2013, the private equity manager Pátria sold the control of Anhanguera while retaining 17 percent of its shares. The Rodrigues family holding company owns 70 percent of this fund. Walfrido dos Mares Guia is the founder of the Kroton Group. Twice a minister of the Lula government (first of tourism and later of institutional relations), he was mentioned in connection with the mensalão (monthly allowance) corruption scandal, having been vice governor and campaign coordinator for the reelection of Minas Gerais’s governor, Eduardo Azeredo (today condemned and imprisoned). In other words, he was a businessman and politician who participated in the two main moments of expansion of education companies in Brazilian higher education, occupying important positions under both parties in power. He was very friendly with Lula, to the point of lending him his private jet to attend the hearings of the federal court. ¹⁰

In 2013 Anhanguera and Kroton merged through an exchange of shares, thus becoming shareholders of the biggest player in a sector valued at more than R$10 billion. Aid from the left-wing government was providential. Under Dilma Rousseff, the Kroton-Anhanguera group had the largest number of students with FIES loans, having seen an increase in the use of the student financing program between 2010 and 2013 of 2,000 percent. Siimilarly, the Estácio group went from 6,900 FIES beneficiary students in 2010 to 39,900 in 2013, and the Universidade Paulista recorded a sixteenfold increase, with 46,000 FIES beneficiaries in 2013 (Burgarelli, 2017: 44).

From Isolation to Investment Funding Via the Stock Exchange

Three periods of expansion of the for-profit private sector may be identified. The first, from 1970 on, saw business education take the lead among graduates; the second, during the Cardoso government, witnessed the expansion of the for-profit private sector. Ministry of Education data show that public-sector slots were 39.8 percent of the total in 1995 and fell to 30.2 percent in 2001, while private-sector vacancies increased from 60.2 percent to 69.8 percent. This expansion found its structural limits in the second half of the 1990s in an adverse socioeconomic context that generated drop-outs, unfilled places, and default for private institutions. As usual, the state was used to account for rising operating costs. During the Lula government, ProUni was created, replacing tax exemptions for for-profit institutions with scholarships. ¹¹ With this state aid to alleviate fixed expenses, the for-profit private sector managed to survive the severe economic situation of the late 1990s and early 2000s. This public policy also showed the strong hand of the owners of for-profit private companies and their representatives. Comparing Bill 3582/2004 (January 13, 2004), Provisional Measure 213 (September 10, 2004), and the final wording of ProUni Law 11,096 (January 13, 2005), there were 292 amendments favorable to the interests of the for-profit sector. Attention should be drawn here to the contradictory aspect of inclusion policies such as ProUni. Despite the significant reduction of social inequalities, ¹² the sociopolitical arrangement is not an improvement on the practices of political culture that underlay the Brazilian bourgeois revolution (Ianni, 1981). The path was the classic reconciliation with fractions of the ruling classes. This reconciliation, at a time of economic boom, ended up taking on significant reductions in income inequality, raising more than 30 million people above the poverty line. However, the changes ¹³ that made it possible for the popular segments to achieve some advances in living standards were stitched together by organizing the state according to the interests of the country’s socioeconomic elites. As a result, a third moment of great expansion took place under the Lula government and, subsequently, under the Dilma Rousseff government through ProUni and the FIES, which maintained and vigorously fed the public funding for the for-profit private sector initiated during the military regime.

Although the Lula government has expanded and decentralized enrollment in the federal public network, which had been stagnant and concentrated in capitals throughout the Cardoso government, through its Program to Support Federal University Restructuring and Expansion Plans, the PT governments were also very efficient in sustaining the hegemony of the for-profit private model by enabling the inclusion of low-income students. Between 2010 and 2014, public funding for for-profit universities increased from R$880.3 million per year to R$13.7 billion, an increase of 1,456 percent, with R$6.6 billion financing university students from the eight largest conglomerates. Data from the 2014 higher-education census show that these eight groups, five of which are publicly traded (Anhanguera Educacional S.A., GAEC Educação S.A. [owner of the Anima brand], Estácio Participações S.A., Kroton Educacional S.A., Ser Educacional S.A., the DeVry Education Group, Laureate International Universities, and the Universidade Paulista) were responsible for one in four enrollments (27.8 percent)—2.1 million students, more than in public enrollment (25.1 percent) (Toledo, 2016). There is a great centralization of capital that results in the oligopolization of the market (Hobson, 1965; Marx, 1980). The Marxian metaphor (Marx, 1980: 508–509) of “the little fish being eaten by sharks and the sheep by the stock market wolves” is very apt. The education companies have the power to make their interests prevail over those of the state, professors, and students.

Education As An Asset: Shareholder Logic and the Education System

Shaping this process are executives with expertise in finance and business management. Education is seen as just any product: “I am selling a product. Only, instead of selling tomatoes, my product is a place for students to study,” says an economist specialized in investment in the sector (quoted in Erthal and Perozim, 2007). It is a product that can be valorized in the very short term, since it is subject to the parameters of the stock market, which are based on companies’ quarterly results. It is now an asset, a commodity that needs to be valorized to “maximize shareholder value” (Jensen and Meckling, 1976). To obtain more profits, entrepreneurs reduce investment, always with the justification of “cutting costs”—in the case of the quality of the teaching staff by firing professors with doctorates. The average for doctorates in the private sector is 18.2 percent and in companies with capital on the stock exchange 14.4 percent, while among public universities it is 53.2 percent (Toledo, Saldaña, and Burgarelli, 2015). An imprecise law permits subterfuge. The Ministry of Education requires that a third of an institution’s professors have a Master’s degree or a doctorate, and therefore private universities end up employing teachers with Master’s degrees so as to pay them less. Reducing spending on labor in this way is common practice, as are the reduction of hours per class per teacher, the expansion of distance learning, the cancellation of classes that are not full, and the reduction of professors’ workloads to encourage their departure. All these elements end up making the professor’s work more precarious. Teachers in the lucrative private sector are denied autonomy from the beginning—paid by the class, without a career plan, and required to circulate among various units to teach in overcrowded rooms without job stability, academic freedom, incentives for continuing education, or, for the most part, any involvement in research (Durham, 2003: 38, 41; Martins, 1987: 58–60). What distinguishes the current scenario is that the profit maximization logic has intensified the proletarianization of teaching.

Groups with shares on the stock exchange have invested less in teachers. Teachers’ remuneration in relation to net revenue in the average such company decreased from 45 percent in 2010 to 35 percent in 2014. Publicly traded companies (Kroton-Anhanguera, Anima, Estácio, and Ser Educacional) had, on average, a 201 percent increase in net revenue in the period, with most of these funds being distributed as profits to shareholders (Toledo, Saldaña, and Burgarelli, 2015). Thus, it will not be a surprise, given the relentless pursuit of increased profit margins and considering the ongoing labor reform in Brazil, that the for-profit sector is once again using, with legal support, false teacher cooperatives, an expedient employed by some institutions in the early 2000s (Calderón and Lourenço, 2011). With this strategy entrepreneurs can resolve the issue of their main cost in a market totally governed by capitalist logic: the social benefits of teachers. Professors continue to receive payment per hour/class but now without receiving leave, vacation, the thirteenth wage, or any other guaranteed social right. They are completely disconnected from the institution, mere service providers without any organic involvement with the place in which they operate, with attention being given only to the time spent earning their “wages.” To simplify administration, courses are standardized, and the content of the classes tends to be the same in all units. As a result, there is a “pasteurization” of didactic content that has deleterious effects on teachers’ freedom to think about how to structure their classes. Pedagogical management becomes subordinate to business management, and course directors’ and coordinators’ salaries are subject to “variable remuneration” programs like those of the managers of medium-sized and large corporations (Mautone, 2007).

The student begins to be treated as a mere customer. There is no minimum student selection, and this leads to selection that is inconsistent because, since the institutions are companies, they need the student-client to pay. Despite the recent advances in the inclusion of lower-income sectors in public higher education, there are still students—generally poorer, working-class, and the products of public schools—seeking private higher education, especially at night. It is these students, who have a deficient background in basic public education (given the neglect of this by successive governments over decades), who are confronted with this new configuration of higher education as simply an asset to be negotiated and valued on the stock exchange, and this ends up further deepening the social gap between fractions of Brazilian social classes. This is the most perverse face of the new situation—the sale of a diploma that is increasingly devalued or has little impact on the labor market because it is no longer so rare and is based on low-quality courses in institutions lacking prestige for individuals with little cultural and educational capital. Instead of effective democratization, this is social reproduction (Passeron, 1982). Even more striking, this has been done with the backing of state power under a government of the left. For example, ProUni has the distinction of allowing older individuals, married and with children, family providers, and residents of peripheral neighborhoods access to higher education, but many of these scholarship holders are enrolled in low-ranked institutions (Almeida, 2014). Last but not least, we have the constant feeding of the cycle of poor quality in Brazilian education, a central component of the preservation of the country’s educational inequality: most of the future professors who will work in public basic education are trained precisely in the for-profit private sector that predominates in the number of graduates. It is they who will make up the massive new generations from the most socially deprived social sectors.

After 2015, with the economic recession that hit Brazil, which led to cuts in the federal budget, the FIES was streamlined, and enrollment through this program declined. As a result, the higher-education conglomerates directed their forces toward basic education through the payment of tuition, acquisition of educational technologies and equipment (cell phones, tablets, applications), handouts, and other educational services (Adrião, 2017; Cunha, 2018).

Conclusion

The history of the for-profit higher education that is now hegemonic in Brazil at the undergraduate level reveals a new configuration manifested in the form of investment funds that trade on the stock exchange the shares of universities mainly targeting students from public schools. The management of investment funds is characterized by a very short-term logic (the quarterly results of the stock’s performance) to the detriment of the medium- and long-term logic that education requires. Here is the paradox: While it is necessary to reduce costs to maximize shareholder value, this means delivering precarious educational quality. In effect, as investment funds begin to treat education as an asset that requires accelerated valuation, the consequences for teaching and learning are lethal. The driving idea is to wait until the company reaches a more significant market value and then “divest” either by going public or by selling to other investors in the industry (usually wealthier funds).

The impacts of shareholder logic directly and deeply affect the actors involved. Once the universities are acquired, the funds take over their management and apply the principle of maximizing shareholder value. Management is carried out by executives from other business sectors, usually multinationals or investment banks. The former university owners are rewarded with shares but no longer attend to day-to-day administration. Increased profitability requires maximum cost-cutting, and among these costs is the cost of the professor worker. When the most qualified are not summarily dismissed, teachers begin to live with a new and tense working reality: more precarious and proletarianized, with reduced wages, no career progression, intensified work, and no organic link with the institutions to which they provide services. Education loses its specificity; it is treated like any other commodity. Standardization and economies of scale are employed to reduce expenses for books and, notably, individuals who produce and transmit knowledge, which leads to a loss of independence of thought, the basis of modern knowledge.

As for the students who turn to these for-profit private higher-education institutions, most of them public-high-school graduates in search of a certificate for social advancement (especially those who, in the past decade, have benefited from the income distribution that is now in decline because of the economic crisis), they represent a social sector that is at a disadvantage in the competition for places in public universities, and the long-awaited higher-education diploma sold at a relatively high price by education entrepreneurs leaves a bitter taste that will only be properly experienced when they enter the labor market. They want a diploma because they have been told only part of the story—that it “increases income”—but not that there are diplomas and diplomas. With great difficulty, in the course of their trajectories, they learn that education does not work like any other commodity as the private interests want to make us believe. The value of the higher-education diploma has a symbolic dimension of academic prestige—the type of course and where it was taken—that may increase or decrease its economic returns. Therefore, for someone who is treated as a student-client rather than as a citizen, it only contributes to the preservation of a type of access that reproduces inequalities.

In summary, the historical process of structuring Brazilian college education has had profound limitations. Governed by a logic of maximum profit that treats basic educational dimensions as obstacles—“expenses” to be eliminated, without effective state control—produces teaching of very poor quality, with the result that most institutions are just diploma factories for students from the most socially and culturally deprived sectors.