SLM Corp. (SLM) said its balance sheet will shrink as federal student loans on its books run off with no addition of new loans as the Obama administration moves closer to cutting private lenders from this market.

As a result, "cost-cutting will happen," said Al Lord, chief executive of the largest U.S. student loan company, during a Webcast of Barclays Capital's global financial-services conference in New York.

Cost-cutting measures could include about "2,000 fewer employees," said Lord.

The earnings of the Reston, Virginia-based company, also known as Sallie Mae, are expected to take a hit under the Obama administration's proposal to eliminate the income that the lender gets from federal student loans through the Federal Family Education Loan Program, or FFELP.

Traditionally, Sallie Mae, which makes private and federal student loans, earns 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.

Sallie Mae originated nearly $20 billion of federal student loans in 2008-'09 academic year.

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. The company in June 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.

Sallie Mae shares were recently quoted at $8.95, up 28 cents, or 3.23%.

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