UPDATE 1-Sallie affirms '08 outlook, House votes, shares rise

(Recasts; adds analyst; updates share movement)

By Kevin Drawbaugh

WASHINGTON, April 17 (Reuters) - Sallie Mae (SLM.N), the largest U.S. student loan company, affirmed its 2008 profit forecast on Thursday as legislation advanced to stabilize the college loan market, sending its shares higher.

As Congress and the Bush administration moved closer to intervening in the $85-billion market, Sallie Mae said it still expects 2008 "core" earnings of $1.70 to $1.80 a share.

Chief Executive Al Lord told analysts on a conference call: "We've been predicting something of a train wreck" in mid-2008 without prompt changes in a market hit by fallout from the subprime mortgage crisis and cuts last year in government subsidies to federally guaranteed student loan companies.

Lord said Sallie Mae's new loans for the most part would lose money as a result of the credit crunch.

Shares of Sallie Mae, known formally as SLM Corp, were up 5.8 percent to $17.20 in afternoon trading on the New York Stock Exchange amid a broadly lower market.

Andrew Parmentier, a managing director at FBR Capital Markets, said the shares moved higher on factors that included the confirmed profit guidance and improved prospects for swift action from Washington.

The U.S. House of Representatives approved a bill on Thursday calling on federal financial institutions, including the Treasury Department's Federal Financing Bank, to pump liquidity into the student loan market.

It would also let the Department of Education buy federally guaranteed student loans from lenders unable to sell them on the largely inactive secondary market, and funnel loan capital to colleges through state guaranty agencies.

A similar bill is pending in the Senate. The White House on Wednesday voiced support for much of the legislation.

Speaking ahead of the House vote, Sallie Mae's Lord said the company was working with Congress and the Bush administration "to make solutions for lending viable. ... The effort has been very pleasantly bipartisan to this point."

Millions of young people will begin this month to lock in their financing before heading to college in the autumn, raising concerns among officials about loan availability.

Sallie Mae posted a first-quarter net loss late on Wednesday. However, core earnings, which exclude changes in the value of derivatives and one-time items, were 48 cents a share, or 10 cents above the analysts' average forecast, according to Reuters Estimates.

On the conference call, Lord said Sallie was being flooded with loan applications from students, reflecting the exit of dozens of other lenders from the business.

"Far more have left than have announced they've left," he said. "We're operating, as everyone is, in some fairly strange capital markets."