Taking a hit from the barely-thawing credit markets, SLM Corporation (SLM), commonly known as Sallie Mae, posted a loss after Wednesday’s closing bell.

The student loan provider reported a net loss of $21 million, or 10 cents a share for the first quarter. During the same time last year, the Virginia-based company posted a net loss of $132.8 million, or 28 cents a share.

The largest U.S. student lender cited the unrest in the commercial paper market and a feature of the U.S. Department of Education participation program as reasons for its decline.

The sharp decline in CP rates decreased net interest income by $40 million, the company said.

"Ironically, positive action taken by the federal government to stabilize the commercial paper markets is adversely impacting student loans and student-loan backed securities,” said Vice Chairman and CEO Albert L. Lord in a statement.

For the quarter, the company, which makes private and federal student loans, originated a record $6.6 billion of government-backed student loans, up from $6.0 billion a year ago.

Private education loan originations came in at $1.5 billion, down from $2.5 billion in the same period a year prior.

According to the Department of Education, student loan defaults are spiking, with default rates for federally guaranteed student loans expected to hit 6.9% for fiscal year 2007, the highest rate since 1998. Sallie Mae was forced to write off 3.4% of its private loans last year.

Operating expenses weighed in at $296 million in the quarter, including $5 million in restructuring charges.

In early April, the company announced it was returning its overseas operations to the U.S and creating 2,000 jobs in the next 18 months.