SLM Corp. (SLM) said losses from souring student loans will slow early next year and will peak in the third-quarter.

"Early delinquency buckets are showing improvements," Albert Lord, chief executive of the largest U.S. student loan company, also known as Sallie Mae. Lord's comments came during a conference call Wednesday morning to discuss the company's second-quarter earnings, which were announced Tuesday after the close of the U.S. stock market.

The company wrote off $355 million of its private education loans in the second-quarter, an increase from $202 million in the preceding quarter. About half of these loans were non-traditional private education loans, a market segment the company discontinued 18 months ago.

Private student loans, which aren't guaranteed by the government, are riskier - and more profitable - than federal loans. But private loan volume has declined because of the freeze in the credit markets where lenders like Sallie Mae would fund these loans.

Sallie Mae squirreled away $362 million to reserve against potential losses on its private student loans.

While 90-day plus delinquencies rose during the quarter, early stage delinquencies declined. The total loan loss allowance totaled nearly $2 billion at the end of the second-quarter and covers expected losses for the next two years.

The company Tuesday evening reported a loss of $122.7 million, or 32 cents a share, compared with year-earlier earnings of $265.7 million, or 50 cents a share.

Sallie Mae, which makes private and federal student loans, gets nearly one-third of its income from the federal student loans it makes on behalf of the government. It earns another third of its income from the interest it charges on private student loans; the remaining one-third comes from a number of smaller businesses, including fees from college savings plans and collecting defaulted student debt.

The company last month won a crucial contract from the U.S. Department of Education to service federal student loans. The five-year contract will provide income that would help offset the loss in revenue stemming from the Obama administration's plans to rein in subsidies on federal student loans, which make up a chunk of the portfolio of Sallie Mae and other student lenders.

Investors have been concerned about the Obama administration's proposal to eliminate the income that Sallie Mae gets from federal student loans. But they hope that this loss in income would be somewhat offset by the plan's requirement for the participation of private lenders, such as Sallie Mae, for the servicing of federal student loans.

Income from loan-servicing "will begin to contribute to earnings per share soon," said Lord, and will increase in significance "as we build our servicing portfolio."

To be sure, Sallie Mae's earnings are still expected to suffer as a result of the potential revenue loss under the Obama proposal. But additional income from servicing the federal student loans should help make up for that; the extent to which it would help depends on the volume of student loans Sallie Mae would service.

The company also said that net interest income, which has been negatively affected by dislocations in the commercial paper market, would improve "significantly" in the third-quarter as this market normalizes.

Net interest income declined by $105 million in the second-quarter due to disruptions in the commercial paper market, where companies typically fund their short-term funding needs.

Sallie Mae shares were quoted at $8.85 in pre-market trading. The stock ended Tuesday at $9.51.

-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com