WASHINGTON — The planned $25 billion buyout of student lender Sallie Mae was thrown into jeopardy Wednesday after the investors said terms of the deal were no longer acceptable.

Sallie Mae, officially SLM Corp., vowed to pursue legal remedies against the investor group led by private-equity firm J.C. Flowers & Co.

The group told Sallie Mae it does not plan to complete the $60-a-share deal negotiated earlier this year, though it is open to discussing new terms.

The investor group has insisted in recent months that new student loan legislation, expected to be signed Thursday by President Bush, could kill the deal. The measure will cut about $20 billion in government subsidies to companies like Sallie Mae that make student loans while halving the interest rate on government-backed student loans.

When Bush signs the bill, the investors may invoke a provision of the acquisition agreement that allows them to scuttle the deal if there is a significant adverse change.

Sallie Mae responded in a statement that it "firmly believes that the buyer group has no contractual basis to repudiate its obligations under the merger agreement and intends to pursue all remedies available to it to the fullest extent permitted by law."

Shares of Reston, Va.-based Sallie Mae fell $1.24, or 2.7 percent, to $45.01 Wednesday.

The blowup of one of the largest private-equity takeover deals ever capped several months of rancorous back-and-forth and disputed claims between Sallie Mae and the investor group comprised of the Flowers firm, Bank of America Corp. and JPMorgan Chase & Co. It comes against a backdrop of weakness in the once-booming private-equity industry, which has stumbled in recent months as an acute squeeze in credit markets has caused investors to balk at financing big deals.

Buyout firms like Flowers had been riding a wave of easy credit but recently have found it harder to persuade their bankers to finance takeovers. Cerberus Capital Management LP in July had to inject more equity into its takeover of Chrysler Group from German automaker Daimler. More recently, The Home Depot Inc. lowered the sale price on its wholesale supply unit by 17 percent to complete its sale to private-equity firms. And last Friday, two private-equity firms backed out of their $8 billion buyout of upscale audio equipment maker Harman International Industries Inc.

The Flowers firm, in a statement, said the investor partners believe "that the conditions to closing under the merger agreement, if the closing were to occur today, would not be satisfied as a result of changes in the legislative and economic environment. We have told representatives of the Sallie Mae board that we are open to discussing a revision of the transaction that reflects this new environment."

A review by Sallie Mae said the new student loan legislation will reduce its "core earnings" net income between 1.8 percent and 2.1 percent each year over the next five years.

The two sides in the deal have differing interpretations of their acquisition agreement, signed in April, under which significant negative developments can nullify the deal. The company does not believe that the anticipated reduction in earnings rises to that level of significance.

If the deal were to fall through, the agreement provides for a $900 million breakup fee payable by either side under certain conditions.

"Sallie Mae seems eager to have its day in court," Kathy Shanley, an analyst at Gimme Credit, an independent research service on corporate bonds, wrote Wednesday. "We can't assess the odds of Sallie Mae prevailing on the legal merits of its case, since there is little if any precedent for this dispute. A court battle would certainly be entertaining for observers with no skin in the game, but it remains entirely possible that cooler heads may prevail and bring the parties back to the bargaining table."

Sallie Mae says that its financial performance was strong in the third quarter, with a robust level of new loans and an expected $100 million decline in writeoffs for defaults on private student loans _ those not backed by the government and whose interest rates aren't capped _ compared with the second quarter.

___

On the Net:

SLM Corp.: http://www.salliemae.com