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Funds News

Sallie affirms '08 outlook, House votes

WASHINGTON (Reuters) - Sallie Mae SLM.N, the largest U.S. student loan company, on Thursday affirmed its 2008 profit forecast, but warned of a "train wreck" in the $85 billion education financing market without urgent government intervention.

Graduates celebrate receiving a Masters in Business Administration from Columbia University during this year's commencement ceremony in New York on May 18, 2005. REUTERS/Chip East

The company said it still expected “core” earnings of $1.70 to $1.80 a share for the year.

But 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 federal subsidies to student lenders.

As a result, Lord said Sallie Mae’s new loans for the most part would lose money.

He said Sallie Mae was working with Congress and the Bush administration “to make solutions for lending viable ... The effort has been very pleasantly bipartisan to this point.”

His remarks came hours ahead of an expected vote on the floor of the U.S. House of Representatives on a bill meant to help stabilize the student loan market, with legislation also pending in the Senate amid general White House support.

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.

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The legislation pending in Congress would let the Department of Education buy federally guaranteed student loans from lenders unable to sell them on the secondary market, where investors have retreated from securitized debt.

The bill would also let the department funnel capital to colleges through state guaranty agencies and call on federal financial institutions, including the Federal Financing Bank, to pump liquidity into the student loan market.

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.

The company’s shares were up $1.29, or 7.9 percent, at $17.55 in morning New York Stock Exchange trade.

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.”

He said loan demand at Sallie was running at $3 billion a month, while the company has only been able to access funding of about $1 billion a month -- at record-setting costs.

Sallie Mae Chief Financial Officer Jack Remondi said on the call: “Although we are awaiting a potential resolution of this issue from Washington, I want to be perfectly clear. We will not do business that jeopardizes the company’s liquidity position or franchise value.”

Other major student lenders include Citigroup C.N, JPMorgan Chase JPM.N and Bank of America BAC.N.

Reporting by Kevin Drawbaugh; Editing by Lisa Von Ahn

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