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Nelnet is an education planning and financing company focused on providing quality products and services nationwide. The company offers pre-college, in-college and post-college financial services to students, families, schools and financial institutions. Nelnet operates in the United States and Canada.
The issue Lawrence Sports faced was granting credit to customers and Nelnet faces the similar challenge. Nelnet, Inc. provides origination and servicing activities for non-federally insured loans. Granting loans to individuals and businesses was a long term investment. However, the College Cost Reduction and Access Act of 2007, cut funding for a program Nelnet relied on by $20 billion. The cut caused higher origination fees and lower special allowance payments for lenders. The legislative changes cut 70 to 80 basis points from the spread earned on new student loans, which effectively took away any profit from new loans. Nelnet continued to help individuals with financial assistance but realized a serious delay in cash flows. The (cash inflows) collections and (cash outflows) disbursements were not corresponding with the company’s budget (Marketline Info, 2007).
The company responded to the issue by choosing a strategic restructuring to proactively resize student loan business to fit a new, lower economics of student loans. Through a workforce cutback and the decline of borrower benefits on new loans, the organization was able to lower the origination cost by more than 70 percent. With extra cash on hand, the company invested in stock through Nelnet’s stock repurchase program (Marketline Info, 2007).
The outcome of the issue is that Mike Dunlap, Chairman and Chief Executive Officer of Nelnet, believed in conservative and transparent accounting policies. The company did not use gain-on accounting, but recorded all assets and liabilities on a balance sheet. He stated, “This is both transparent and conservative because it...