Universities in Brazil have long been for the privileged few. Only 11 percent of the working-age population has a degree — and such scarcity has brought rich rewards. Graduates earn on average, 2.5 times as much as those without degrees, and five times as much as the majority who don’t finish secondary school. Until recently, those gains, higher than anywhere in the OECD, a group of mainly rich countries, went mostly to those who had attended private schools. As in India, they went on to public universities where they pay nominal, if any fees at all.

Students in Brazil’s public universities are still whiter and richer than average, and much more likely to have been privately schooled. And taxpayers still pick up their tab, spending five times as much per university student as per schoolchild. But explosive growth in private, for-profit universities is at last opening up higher education.

In 2010, the latest year for which figures are available, there were around 2,400 universities or colleges of further education, of which only a tenth were public. Some of the rest were charitable, mostly Catholic. But three-quarters are run for profit, including the biggest five.

None of the for-profit institutions has the prestige or resources of the best public ones, such as the University of São Paulo, Latin America’s lone star in international rankings. Some are little more than diploma mills of dubious quality. But a qualification from one of the leaders can double a youngster’s starting salary, says Alexandre Oliveira of the International Finance Corporation (IFC), an affiliate of the World Bank. Private universities’ role in poverty reduction is why IFC invests in three universities in Brazil: two giants, Anhanguera and Estácio de Sá, with 650,000 students between them, and the smaller Maurício de Nassau.

A large population of young adults, deficient schools and the growth of industries such as oil, that demand skilled workers all mean that the demand for higher education will continue to rise, says Carlos Parizotto of Cypress, a consultancy. Since the public sector will lack the cash to expand provision, it will have to come from private institutions.

The government recognises this. It offers private universities tax breaks in return for giving around a tenth of their places free or at discounts to students on modest incomes, benefiting more than a million pupils since 2005. An estimated 300,000 students will get low-interest loans this year. As well as boosting demand, these schemes have helped to raise standards (because beneficiaries must reach minimum entry requirements) and cut drop-out rates.

Even so, more than half of students in higher education drop out before completing their courses, hobbled by financial worries, a poor grounding in the basics and hectic schedules (most courses are part-time at night). Such considerations put many aspiring students off as well. As long as jobs and salaries stay buoyant, the money worries may ease. But universities have to spend on technology and seek economies of scale if they are to improve quality, cut costs, keep the students they have and woo more.

That suggests a shake-out in the private sector. The past few years have seen well-capitalised Brazilian groups such as Anhanguera, Estácio and Kroton — listed on São Paulo’s stock exchange — and big foreign education conglomerates such as DeVry and Laureate (both American) swallow many minnows. But there are still plenty of others which could profitably be gobbled up.

Better-endowed public universities still offer most of the available courses in natural sciences and engineering. Their prestige and (sometimes) higher quality tend to lead to higher-paying jobs. Letting them charge fees would at least lessen the subsidy to the better-off. But this is barred under Brazil’s Constitution.

So the government is seeking a different route to social justice: admission quotas. Last month, President Dilma Rousseff signed a law which gives federal universities until 2016 to reserve half of their places for students from state schools. Of those, half must go to very poor students, and black, mixed-race or Amerindian students must be admitted according to their share of the local population.

(Excerpted and adapted from The Economist)