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(Adds details, share performance, from paragraph 3)
By Ana Mano and Gabriela Mello
SAO PAULO, July 6 (Reuters) - The Brazilian government will be freed from some of the credit risk in a state-subsidized student loan program, Education Minister José Mendonça Filho said on Thursday, as it overhauls a costly initiative that has helped widen a record budget deficit.
Sharing the risk of student loan defaults with for-profit education firms is a way to fine-tune the so-called Fies program, which was created to make it easier for low-income students to attend private universities, Mendonça said at an event in Brasilia.
The government, which will offer at least 300,000 Fies loan contracts per year from 2018 under the new rules, will not entirely remove subsidies, Mendonça said, adding that as many as 100,000 loans will have zero interest.
Shares of Brazil's listed for-profit education companies fell, reflecting investor concern over the reliance on Fies and that the companies will assume risk as student delinquencies rise.
Default rates under the old Fies format neared 47 percent, from an expected 10 percent, according to slides at Mendonça's presentation. Estimates on how the overhaul will affect the budget are expected in a few days, Mendonça said.
Kroton Educacional SA fell 1.5 percent, while Estácio Participações SA slid 2.3 percent and Ser Educacional SA shed 1.7 percent.
Mendonça said the National Treasury bore the brunt of default risk, which is not done in other countries with similar programs. The fiscal cost of the Fies program was 32 billion reais ($9.67 billion) last year, 11 times higher than in 2011, the government said.
With the government sharing more of the risk with private companies, the firms will need to be more selective on enrolling students, he said.
Additional funding for the program will come from constitutionally created regional funds, state development lender BNDES and private-sector banks.
Still, a mechanism will be introduced to increase private-college allocations to a fund known as FGEDUC, which guarantees the loans. The private operators will be required to cover default losses if delinquencies rise above predetermined levels of between 20 percent and 25 percent.
Some 150,000 of the annual Fies loan contracts will have a 3 percent interest rate. The rate on the remainder of the loans has yet to be decided. ($1 = 3.3084 reais) (Additional reporting by Lisandra Paraguassu; Writing by Guillermo Parra-Bernal; Editing by Jeffrey Benkoe)