Oct. 2 (Bloomberg) -- SLM Corp., the largest provider of student loans, rebuffed an attempt by an investor group led by J.C. Flowers & Co. to reduce its $25.3 billion buyout offer.

The group, which includes JPMorgan Chase & Co. and Bank of America Corp., today proposed paying $50 a share in cash and $7 to $10 a share in warrants, based on SLM's financial results. That compares with the $60 a share in cash that the investors and SLM, better known as Sallie Mae, agreed to in April.

``Our contract is with Bank of America and JPMorgan Chase, two of America's largest and strongest banks,'' Reston, Virginia-based Sallie Mae said today in a statement. ``We expect these banks to honor that contract, not breach the contract.''

Flowers's new offer increases the pressure on Sallie Mae to reopen negotiations. The company's shares have fallen 14 percent since reaching a 52-week high of $57.98 on July 9 and may decline further if the investors walk away.

``Sallie Mae needs to seriously consider the offer,'' said Richard Hofmann, an analyst at CreditSights Inc. in New York. ``Submitting a revised proposal shows there is interest. They are not just trying to get out of the deal at any cost.''

Salle Mae rose 19 cents to $50.09 at 4:30 p.m. in New York Stock Exchange composite trading. The stock had gained as much as 7.5 percent after Flowers's new offer was made public.

Sallie Mae's statement didn't mention J.C. Flowers, the New York-based buyout firm run by J. Christopher Flowers, which would control the lender if the buyout is completed.

Interest of Shareholders

``Our board of directors will review this and respond appropriately based on the best interest of our shareholders,'' Sallie Mae spokesman Tom Joyce said in an interview before the statement was issued.

Scott Silvestri, a spokesman for Charlotte, North Carolina- based Bank of America, referred calls to Flowers. JPMorgan spokeswoman Kristin Lemkau in New York declined to comment.

Flowers, in a letter today to the SLM board, repeated his position that the group wasn't obligated to complete the original deal because of a new law that cuts subsidies to student-loan providers and a slowing economy.

``This revised proposal offers full and fair value to the Sallie Mae shareholders in light of the changes that have occurred since the signing of our agreement,'' Flowers wrote.

Sallie Mae has insisted that there's been no change to warrant a lower price.

J.C. Flowers has raised about 15 billion pounds ($31 billion) in financing that could be used for a takeover of Northern Rock Plc, the U.K. lender that was bailed out by the Bank of England, the Financial Times reported, without saying where it got the information.

Subsidy Cuts

The Flowers group agreed to buy Sallie Mae to capitalize on increased demand for student loans. The deal faltered as the legislation trimming federal subsidies to education lenders made its way through Congress. By Sept. 27, when President George W. Bush signed the cuts into law, Flowers had declared publicly he wouldn't pay the original price.

The two sides haven't met since last week, when Sallie Mae said the Flowers group indicated it wouldn't complete the purchase under the current terms, citing a ``material'' change in the company's performance and prospects.

Either the Flowers-led group or Sallie Mae would have to pay a $900 million fee for walking away from the deal unless it can show that a ``material adverse effect'' has occurred since the initial agreement, according to a regulatory filing.

Defining `More Adverse'

The agreement between Flowers and Sallie Mae defined the term as events that harm the financial condition or operation of the company, such as changes in law that are ``in aggregate more adverse'' than legislative and budget proposals earlier in the year by the Senate, House and the White House.

In the letter, Flowers said the warrants would pay $7 a share if Sallie Mae ``performs consistent with its own projections.'' The payout would rise to $10 a share if the company exceeds forecasts.

The letter also said the buyers would consider amending the so-called no-shop clause which restricts Sallie Mae from pursuing higher offers elsewhere.

The buyers sought, unsuccessfully, to sit down and negotiate a new price without disclosing it publicly, people familiar with the negotiations said. Sallie Mae made it known through informal discussions that it would proceed with negotiations only if the buyers presented a specific new offer, said the people, who declined to be named because the discussions are private.

At issue is the impact of the subsidy cuts on Sallie Mae's business. The company claimed last week the reductions would cut so-called core earnings by 1.8 percent to 2.1 percent annually over five years.

The Flowers group, in its letter today, countered that the impact of the subsidy cuts and upheaval in the credit markets would slash core earnings by more than 14 percent in 2009. That figure would swell to 20 percent in 2012.

``That is material,'' Flowers said in today's statement.

To contact the reporters on this story: Justin Baer in New York at jbaer1@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net

Last Updated: October 2, 2007 18:11 EDT