(Updates with details on interest-rate spread problem, in sixth paragraph.)

 
   DOW JONES NEWSWIRES

SLM Corp.'s (SLM) fourth-quarter loss narrowed on large charges in the prior-year quarter, and the largest U.S. student lender, commonly known as Sallie Mae, said it would continue making student loans this year using government liquidity programs and term bank deposits for private loans.

"Thanks to timely action by Congress and the departments of Education and Treasury, we increased our federal student loan originations in 2008 and continued our mission to help students and families pay for college," said Chief Executive Albert Lord.

Sallie Mae reported a net loss of $216 million, or 52 cents a share, compared with a year-earlier loss of $1.64 billion, or $3.98 a share.

The latest results included a $439 million unrealized mark-to-market loss on derivative contracts and $348 million for managed private loan losses. The prior-year quarter's results included a $1.5 billion loss on contracts to buy its own stock and a $574.2 million provision for loan losses.

Excluding accounting treatment for derivatives and securitizations, core earnings were 8 cents a share, compared with a loss of 36 cents a year earlier.

Sallie Mae said the spread between the commercial paper and LIBOR interest rates, which was wider during the fourth quarter than the historical average, reduced core earnings by 6 cents a share. On Friday, the Department of Education said it adjusted its method of calculation to boost payments to lenders that had been reduced by the unusual spread.

Total interest income dropped 25% to $1.74 billion, while total non-interest income was negative $41.8 million, compared with negative $1.04 billion a year earlier.

Analysts' estimates were for per-share core earnings of 17 cents on revenue of $735.2 million, according to a poll by Thomson Reuters.

The company originated $4.8 billion in loans, including $3.9 billion in federal student loans, a 25% increase from a year earlier.

Private student loans more than 90 days delinquent increased to 2.6% on Dec. 31 from 2.3% on Sept. 30, but Sallie Mae decreased its loan-loss provision 56%, to $252.4 million.

Student lenders have been struggling as the credit markets have tightened, making it harder to raise funds to make new loans. But Sallie Mae is expected to benefit from government-sponsored liquidity programs to support Federal Family Education Loan Program loans through the 2009-10 school year. The company also closed a $1.5 billion, 12.5-year facility with Goldman Sachs Group Inc. (GS) earlier this month to help fund private loans.

SLM's shares closed at $11.70, up 6.7%, and were unchanged in after-hours trading. The stock price has fallen 53% since June.

-By Kathy Shwiff, Dow Jones Newswires; 201-938-5975; Kathy.Shwiff@dowjones.com

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