Oct. 11 (Bloomberg) -- SLM Corp., the largest U.S. provider of education loans, reported a third-quarter net loss and missed analysts' estimates, weakening its push to enforce a $25.3 billion private equity buyout agreement.

The net loss was $344 million, or 85 cents a share, compared with net income of $263 million, or 60 cents, a year earlier, Reston, Virginia-based SLM, also known as Sallie Mae, said today in a statement. So-called core profit, or results excluding certain items, was 70 cents a share, missing the 73- cent average estimate of nine analysts in a Bloomberg survey.

Sallie Mae Chairman Albert Lord said the disputed leveraged buyout by an investor group led by J.C. Flowers & Co. has been a distraction that slowed earnings growth. Congress cut subsidies to student lenders last month, prompting the Flowers group to reduce its $60-a-share offer. SLM rebuffed the lower bid and sued to enforce the transaction contract signed in April.

``It's costing us earnings momentum,'' Lord said on a conference call with investors after the lender issued its financial report.

Sallie Mae declined 8 cents, or less than a percent, to $48.55 at 12:37 p.m. in New York Stock Exchange composite trading.

The company said student-loan originations rose 13 percent from a year earlier and attributed the net deficit to $487 million in losses on derivative and hedging activities, ``principally related to the decline in share price during the quarter on the company's equity forward positions.''

Core Earnings

Core earnings, a measure excluding certain gains and losses, were $305 million. Sallie Mae also said it had $28 million in after-tax reductions because of legislative changes and $18 million in merger-related costs. Including those items, core earnings were $259 million, or 59 cents a share.

A year earlier, Sallie Mae had core earnings of $310 million or 73 cents.

``People are concerned about whether Flowers gets another reason to renegotiate a price lower or walk away from the deal,'' said Sameer Gokhale, an analyst with Keefe, Bruyette & Woods in New York, in an interview before the report.

Buyout Falters

J. Christopher Flowers, head of the New York buyout firm that bears his name, agreed to buy Sallie Mae as demand rose for student loans. The deal faltered as President George W. Bush signed legislation cutting subsidies on Sept. 27. A day earlier, Flowers declared he wouldn't pay the original price.

Under the April agreement, SLM was to be acquired by an entity 50.2 percent-owned by Flowers, with JPMorgan Chase & Co. and Bank of America Corp. each holding 24.9 percent.

Sallie Mae's profits come primarily from interest income on loans and gains from selling debt in securitization transactions. The company has estimated that the cuts in government subsidies will reduce its core earnings by 1.8 to 2.1 percent annually over five years.

The total of loans made or managed by SLM rose 17 percent to $159.8 billion, from $136.9 billion a year earlier, the company said.

To contact the reporter on this story: William McQuillen in Washington at bmcquillen@bloomberg.net; Matthew Keenan in Boston at mkeenan6@bloomberg.net.

Last Updated: October 11, 2007 12:42 EDT