Lender Sallie Mae says buyout deal at risk

SLM Corp., the largest U.S. provider of student loans, said Wednesday that the group planning to buy the company might scuttle the $25-billion deal because of congressional plans to cut lender subsidies.

Shares of the company, known as Sallie Mae, plunged $5.65, or 9.8%, to $52.15.

The buyers, led by private equity firm J.C. Flowers & Co., warned the company that the pending legislation “could result in a failure” to close the purchase, Reston, Va.-based SLM said in a statement.

“Sallie Mae strongly disagrees with this assertion,” the firm said, without elaborating. It declined to comment further.

The takeover agreement allows the buyers to withdraw if Congress cuts federal subsidies for education lenders by more than the $16 billion requested by President Bush in his February budget proposal.

The House on Wednesday approved a measure that would lower the subsidies by $19 billion over five years. Bush has threatened to veto the bill. The Senate is expected to vote on a similar measure this month, though it has proposed fewer cuts.

Flowers, together with Friedman Fleischer & Lowe, JPMorgan Chase & Co. and Bank of America Corp., agreed in April to pay $60 a share for SLM.

Spokesmen for Flowers, Bank of America, JPMorgan and Friedman either declined to comment or couldn’t be reached.

Students borrow an estimated $85 billion a year to finance college costs. The loans are considered safe because of government guarantees.

Sallie Mae raises money by issuing bonds to investors. The company then uses the funds to make loans to students. The company makes money off the loan interest and by servicing the loans on behalf of investors who buy them via loan-backed bonds.