Sallie shares surge on gov't intervention talk

Because of the government's decision to step in, the nation's largest student lender will continue to make federally backed loans, Sallie Mae's chief executive Albert Lord said in a conference call with officials from colleges and universities.

"We have reached a conclusion that we will stay in the program," Lord said, noting that the steps being taken by the government will be sufficient to keep the company lending through the 2008-09 academic year. "Our commitment is virtually unbounded under this current (government) proposal," he said.

Shares of Sallie Mae, formally known as SLM Corp., rose $1.22, or nearly 6 percent, to close at $22 on Wednesday. They immediately lost the same amount in after-hours trading, however, dipping 5.5 percent to $20.78.

The gain came in a market gutted by economic gloom and concern over record-high oil prices, with the Dow Jones industrial average marking a two-day slide of more than 425 points.

Reston, Va.-based Sallie Mae has suffered since last year from financial losses, a failed buyout and reshuffling of top management. In January, the company announced it was cutting back on its core business of making student loans, becoming more selective and stressing the importance of graduation as a predictor of a person's higher earnings potential and likelihood to repay loans.

And, as it pushed aggressively for federal help in recent weeks, Sallie warned that it could not lose money indefinitely on federally-guaranteed student loans. The company made more than $9 billion in new federal student loans last year.

During these weeks, the distress call over student loan access has been sounded by lenders, Wall Street investors and college administrators. They have gotten a sympathetic hearing -and helpful legislation -on Capitol Hill.

Distress in the $330 billion market for auction-rate securities in recent months -itself an offshoot of the subprime mortgage crisis -has caused more than 80 student lenders, including some state agencies, to stop making federally guaranteed student loans either temporarily or permanently.

On Tuesday, Bush administration officials told lenders that the government would buy up their student loans to ensure the companies have access to capital. Congress recently gave the Education Department the authority to do so.