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Responding to the needs of its citizens and demands of business owners for more job-ready candidates, Brazilian policymakers have launched an aggressive educational subsidy program known as FIES. The program’s goal is to incentivize educational matriculation, especially among the middle- and lower-class populations of Brazil. Notably, within Brazil, only 52% of 15 to 64 year olds had attained secondary-education levels or better as of 2011. In response to this suboptimal level of educational availability, FIES provides significant financing benefits to students and subsequently opens up robust market opportunities for quality providers of secondary education.

Given our stakes and interest in several Brazilian for-profit educators, I recently spent several days in Brazil meeting with management teams and touring educational facilities. During my visit, I sought to assess the potential for market growth and to determine the degree of FIES awareness and utilization among potential students. I was positively surprised by the relatively low market penetration and the obvious economic benefits for potential students. Moreover, whereas many private industries in Brazil have recently suffered from populist policies extolled by the Brazilian government, FIES initiatives require a harmonious partnership between public and private entities to succeed given the heavy reliance on the availability of quality education. The compelling growth opportunities are beginning to factor into expectations for private educational companies. BTG Pactual estimates that during 2013 the free cash flow (FCF) yield of the sector will expand by 80 basis points while return on invested capital (ROIC) should increase by 350 basis points for listed education companies as operating leverage materializes.

1. Determine how your company will fund the scholarship award(s)

There are two basic types of scholarship funds: endowed and annual. Your company will need to choose the one with which to establish its scholarship.

Endowed Scholarships

Endowments are large amounts of money that form the fund and are invested. The amount invested is never spent on the scholarship awards. Rather, a portion of the money earned in this investment is awarded for scholarships. An investment broker can advise your company on the best ways to invest the endowment.

Annual Scholarships

Unlike the endowed scholarship described above, an annual scholarship is not a permanent fund. The annual scholarship is awarded only as long your company chooses to contribute to the fund. They may either be a one-time gift or replenished each year through an endowment.

2. Determine amount available for scholarship award(s)

Once your company has accumulated the amount of capital needed to establish a scholarship, it must determine the amount available to be paid annually in scholarships. Your company can decide on this amount on a year-by-year basis which provides flexibility in determining the number of scholarships awarded each year.

3. Determine the duration of scholarship award(s)

Your company will need to decide whether the scholarship will be renewable each year or a one-time award.If the scholarship is renewable, consider setting a maximum number of years a student may apply for and be awarded the scholarship. Generally, renewable scholarships have a condition that requires the receiver to complete the scholarship application annually.

With the economy still in the doldrums, new college graduates are facing the toughest job market in years. only one in five of this year’s graduates left school with a job in hand. for the majority of graduates who also have student loans—an average $23,000 of debt—the rough job market could mean a greater chance of default and damaged credit. Congress can ease the burden on struggling graduates by expanding the ability of unemployed students to temporarily postpone, or defer, their loan payments interest-free. This small boost can help recent graduates avoid default and stretch their resources while they look for that all-important first job.

THE PROBLEM

Big debts and fewer jobs for recent college graduates

College graduates face tough job prospects in the current economy.

Today’s graduates are entering the shakiest job market in decades. Since the recession officially began in december 2007, 7.4 million jobs have been lost in the U.S. Economy. According to the national association of Colleges and employers, fewer than 20% of 2009 college graduates who applied for a job actually had one in hand when they graduated, as opposed to more than half of those who graduated in 2007. And the outlook for the Class of 2010 doesn’t look much better. employers expect a 7% drop in the number of 2010 graduates they hire compared to 2009, which will add to the nearly 25% hiring drop from 2008 to 2009.

Even graduates a few years out of college are struggling to find work. in august 2009, 4.7% of workers with a bachelor’s degree or higher were unemployed—more than double the rate in august 1999. Even with signs that the economy might be stabilizing, unemployment is predicted to continue increasing to 10% through the end of 2009 and decline only gradually in 2010.

The dramatic 20%+ increase in student numbers over the last 10 years has left most higher education establishments very short of accommodation; even for first year undergraduates who are traditionally provided with accommodation. In the competition for students, particularly the higher tuition fee paying post-graduate and foreign students, universities will need to upgrade and expand their student accommodation wherever possible. At the same time, however, they are facing cuts to finance, which will severely limit their ability to do so. It is expected that universities will increasingly look to the private sector to acquire their aging stock, rejuvenate it and continue to provide it to the same under-served student base.

UK Degree Acceptances

Source: UCAS

The student sector continues to deliver strong returns compared to other mainstream asset classes in the UK. Despite current economic and property market conditions, the volume of deals in the student sector recently has remained significantly high. There have been circa 85 major deals in the 18 months to July 2011 with a total value of £1.3 billion. Of the deals that involved direct let schemes in 2010, the average net yield was between 6.25% and 6.35%. Yields on the whole have moved in since this time last year, mainly because of higher volumes of investment.

What are “Emerging Markets”?

In this report, “emerging markets” are characterized by their growth potential to send international students overseas. it is not synonymous with “emerging markets” as used in business and economics. In economics, emerging markets are distinguished from mature econo-mies, like the u.S., and are generally accepted as “emerging” by virtue of their recent fast economic growth. Although emerging markets show growth potential for international recruitment, not all rapidly developing economies are emerging source
countries, or vice versa. in other words, emerging markets in this study are defined by the potential they offer for institutions to recruit international students, not solely by their economic growth rate.

It has become increasingly important for U.S. universities in recent years to seek out emerging markets for international student recruitment. On one hand, these markets present opportunities for enrollment growth, on the other, they present risk due to their uncertainty. According to the Boston Consulting Group, nearly 125 million households in emerging market cities will enter the middle class between 2010 and 2015. (1) At the same time, the slackening economic growth of China and India, which are currently the two main sources of international students coming to the U.S., may impact overall international student enrollment, calling into question the over-dependence on these countries.(2)

How prepared are U.S. higher education institutions (HEIs) to deal with emerging markets in an unpredictable and evolving environment, and how can they maximize opportunities for international student recruitment? What does this mean for HEIs that must make strategic choices about selecting and developing source countries for recruitment?

International student recruitment is inherently complex due to a wide range of source countries and competition among institutions of higher education within and beyond national boundaries. The recent worldwide financial crisis has led to budget cuts, adding a new sense of urgency among many institutions to recruit self-funded students. In this new hypercompetitive environment of international recruitment, institutions must optimize at least five primary dimensions—quantity, quality, diversity, time and budget. They are expected to recruit quality students, while ensuring diversity within the shortest span of time and with limited financial resources. These expectations present an enormous optimization problem, but can be managed with an informed and planned recruitment strategy.

Student loan schemes (SLS) have been established inat least 50 countries around the world. The literature illustrates many of the difficulties in running such programs, some of which include the high administrative costs for managing loan schemes, high default rates, and subsidized interest rates. These initiatives all struggle to find the balance between providing some degree of subsidy to needy students and ensuring that the loan schemes are financially sustainable. At the time the SLS was launched in 1972, the CDB was still in its infancy. Its poverty agenda, although evident in its Charter, had not been operationalized as it iscurrently with the introduction of concepts such as the poverty prism and resource allocation strategies that emphasize poverty reduction. Over this 32-yearperiod, implementation of the SLS has brought about a variety in the models and approaches among the BMCs.

Effectiveness

Overall, the SLS is deemed as an important toolin CDB’s development effectiveness. The study finds that the SLS has met its objectives of training human resources and improving access to tertiary education in the region. In doing so, it has generally contributed to the HRD needs of the BMCs. Despite concerns about the emigration of graduates, the data from the sample of SLS borrowers traced in this study suggests that the students generally return to serve in the region after graduation. Nonetheless, the “push” and “pull” factors for staying overseasmay lead to significant differences by country at different points in time.

The SLS is an increasingly important source of funding for highereducation, representing more than 50% of the funding mix for a majority of the students interviewed. The impact on students is generally positive – 80% of the SLS borrowers in the study sample indicate that without the SLS, they would not have been able to pursue a post-secondary education. In addition, most of the graduates are able to find jobs shortly after graduation. Students also indicate that their standard of living has generally improved as a result of their participation in the scheme, but some note difficulties in servicing debt as a result of lower than expected salaries after graduation. The debt burden for students and its implications for the sustainability of the scheme require attention from the SLS.

At a broad level, the SLS is perceived to make indirect contributions to poverty reduction in the participating countries because it facilitates opportunities for education and training and helps build country capacities. The SLS, however, has been less successful in providing loans to the poor. The security and guarantee requirements for obtaining student loans limit access to the SLS for the poorest segment of the population. Since the special SLS windows to benefit the poor are in early stages of implementation, relatively few students have benefited to date. The study also found examples of mechanisms to facilitate the accessibility of the SLS, such as guarantee funds and interest relief programs withparticipation of the DFIs, government, and other actors. These mechanisms warrant closer study and monitoring.

The majority of SLS borrowers are female, reflecting general trends in educational enrolment and completion rates in the Caribbean. The study notesthat the gender disparity is a complex social phenomenon beyond the scope of the SLS. At the same time, however, there is no evidence of SLS-specific strategies to address the gender question. Many of the factors that limit the effectiveness of the SLS are not new, nor are they exclusive to the SLS; they are evident in other student loan schemes in the region and around the world.

A “winner-take-all” mentality pervades much of higher education today. Colleges and universities have been competing in an arms race in which ever-increasing costs too often cancel each other out. Moreover, the competition has tended to focus on erecting impressive facilities, enhancing student amenities, and otherwise building institutions’ brands and prestige. William Massy, Professor Emeritus of Education and Business Administration and former Vice President for Business and Finance at Stanford University, believes that reining in the arms race requires ushering in a new and more constructive mode of competition—one centered on objectives related to higher education’s true mission.

Massy advocates a shift from the vicious cycle of arms-race spending in pursuit of prestige to a virtuous cycle of expenditures in pursuit of purpose-based objectives that can be meaningfully measured. That is, he urges that competition among institutions be focused on things that really matter, such as improving teaching and learning, increasing educational value added, and enhancing student outcomes. This shift presents the opportunity for institutions to identify their most important objectives—a particularly useful exercise in the current financial climate. Performance measures based on those fundamental objectives, rather than on prestige, will go a long way toward defusing the costly arms race.

Eroding Good Will Toward Higher Education

Commentary by Pat Callan and John Immerwahr published in the Chronicle of Higher Education (1) resonates with concerns about the arms race. They point out that colleges have lived a charmed life—that whereas many institutions in society have lost the public’s trust, “higher education continues to receive praise for its accomplishments, while criticisms fail to stick.” But, Callan and Immerwahr go on to say “the honeymoon may well be coming to an end.” Their research shows that people are worried not only about rising costs, but also about whether colleges remain true to their teaching mission. some 52 percent of respondents say colleges care mainly about money, while only 43 percent see them as focused mainly on education.

Such findings reinforce concerns about the race for prestige that characterizes the American higher education market. In addition to driving up costs, the arms race fosters the impression that colleges are mainly about money. Massive endowments have reinforced this impression and triggered expressions of Congressional concern (recent significant losses have lessened the pressure somewhat, albeit temporarily I suspect). some colleges had been responding by spending more on student financial aid and support of faculty. This is understandable, but skeptics might say these kinds of expenditures can only exacerbate the arms race—that among other things the effort to grow endowment per student is being replaced by overt price competition for the best students in each economic segment and the best faculty in each field, which may well have socially unfortunate consequences for less well-endowed institutions. Congressional concerns about endowments, costs and affordability add to the calls for greater accountability, which demand attention to objectives and success measures. Callan and Immerwahr report that the country is evenly divided on the question of whether college price increases (and by extension spending increases) have meant that students are learning more. They argue that: