Mexicans aspiring to middle-class status increasingly see university education as a must. Yet an over-saturated public university system accepts just a fraction of applicants, and many aspirants lack the means to pay for private college. That's where FINAE, an institution specializing in financing higher education, comes in.
In a credit market for higher education still in its infancy, FINAE is serving a population that traditional banks have mostly ignored: students who are the first in their family to attend college, whose families fall into a bracket with middle-class aspirations, if not income.
Parents think about education like an inheritance, says Celia Guerra, director of financial aid at Mexico's private Universidad Panamericana, which facilitates FINAE credits. She says parents tell her: "Since I don’t have money, all I can leave my children is an education so that they can get ahead on their own."
Francisco Vizcaya, a former executive of Spain's Santander bank in Mexico, saw opportunity in this underserved niche and founded FINAE in 2008. The institution has financed the education of more than 4,000 students since then and spawned competitors, as well.
Vizcaya attributes FINAE's success –- profitability, even with relatively accessible interest rates –- to a low-cost model based on few personnel and risk-sharing with the universities it serves.
"We adopted the model of automotive financing, in which promotion is handled by the dealerships," Vizcaya said. FINAE serves students attending 10 of Mexico’s some 2,500 private universities; FINAE credits are promoted and executed at offices inside participating schools.
The number of Mexicans going to college is rising. Nearly 18 percent of Mexicans reported they had some college education in 2010 versus 12 percent a decade earlier, according to the national statistics agency INEGI.
In the earnings bracket that FINAE serves, Vizcaya estimates there are 7 million young people and only 500,000 attending college.
But given that the credit market is so young, there is a dearth of information about whether students who come from lower income brackets are able to pay back their loans. FINAE charges interest rates between 15 percent and 17 percent, somewhat higher than other financing options backed by the government, due to the higher risk profile of the people it serves. (Vizcaya notes that compares with mortgage lending rates around 10 percent and auto loans with interest rates around 12 percent, while credit cards charge up to 45 percent interest in Mexico.)
Meanwhile, some analysts question the real value of a college education in Mexico, where graduates often suffer higher rates of unemployment than those with less education.
Mexican universities continue to matriculate more accountants, lawyers and computer programmers than the market requires, even while these jobs only afford average or below-average incomes, according to Professionals on Pins and Needles: Is College a Good Investment? by Ricardo Estrada.
Jaime Martinez, coordinator of research in human capital at Mexico City-based think tank CIDAC, said that greater access to credit is a good thing, but students should carefully evaluate what they're paying for.
Credit "ought to come with a lot of information so that people can evaluate the program in which they are enrolling and how they're going to finance it."
Many observers agree that Mexico has a long way to go to developing a culture of credit. Even mortgages and loans for startups are relatively new here. That's one reason why FINAE avoids the word "loan" in its literature but opts for the tamer term "payment plan."
"Our country is startled," said Guerra. "We are afraid of having debt."
She attributes the lack of credit culture in part to a lack of trust in institutions and faith in Mexico's macroeconomic stability. It was fewer than 20 years ago that Mexico suffered one of the worst peso crashes in history, when, in 1994, the currency lost nearly half its value in a matter of days due to economic mismanagement and political uncertainty.
Now, as young people increasingly turn to loans to finance an education they hope will deliver them to a better life, it remains to be seen whether the investment will be worth it –- and whether, on the whole, they’ll be able to pay.
"Whether, at the end of the day, people are going to be able to pay a credit with 18 percent interest is up in the air," said Martinez. "The effects still aren't clear."
Photo: Flickr/Gabriel Flores Romero