Private equity firm J.C. Flowers & Co. has said that it doesn't plan to finish its purchase of SLM Corporation (NYSE: SLM), more commonly called Sallie Mae.

Sallie Mae was created with government support in 1972, though it has been completely privatized since 2004. It manages more than $150 billion in student loans.

The deal to buyout Sallie Mae at $60 per share was announced this April and slated to be complete by next month. In a statement, however, the J.C. Flowers firm, which heads a consortium of buyer including Bank of American and JPMorgan Chase, said "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."

The change in the legislative environment is a reference to new student-loan legislation, which Bush just signed into law, that cuts $20 billion in subsidies to Sallie Mae and other student-loan companies while balancing this measure by drastically decreasing the interest rate on government-backed student loans.

Sallie Mae still thinks the deal should be completed and has released a statement warning 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."

The upcoming battle to decide future ownership definitely makes SLM a stock worth watching!

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