For millions of young adults, a student loan is the first kind of borrowing they do. With the current economic downturn affecting every part of the credit market, many are wondering if private student loans are still an option. The answer is that dozens of private student loan providers have stopped offering loans in the last two months, severely limiting the available options to millions of students. If you are one of the unfortunate number of students that don’t qualify for federally backed student loans, you may find yourself in a precarious position. Let’s take a closer look at your student loan options during this time of economic hardship.

Federal Loans are still the way to go

While the private student loan market is shrinking, the federally backed loans that send millions of kids to college each year is growing. President Obama has promised an expansion of the student loan system that will make getting loans easier. His Democratic administration will also likely lower the interest rates charged by student loans; a rollback of the increases that occurred under President Bush. If you aren’t familiar with how these loans work, simply fill out a FAFSA (Free Application For Student Aid) online or you can print out a copy of the application, fill it out by hand and mail it in. The earliest you can mail in your application in January 1, and all applications must be received by June 30 to receive the aid you are entitled to. Applications that miss that date can still receive aid, but it reverts to a first come, first served basis at that point.

The most popular of the private loans is the Parent PLUS loan that requires a parent to co-sign. If you default on your loan, your parent will then be required to pay it in full. These loans are still available, but the number of banks offering them is shrinking. For instance, in the beginning of December 2008, South Carolina’s biggest student loan lender stopped taking applications for private loans. Similar stories are filtering in from around the country. Since these loans are always on a first come, first served basis, you need to apply as soon as possible if you need private funding for school. These loans are much more difficult to get, come with very little in the way of interest rate protection and become the sole responsibility of your parent should you default.

Thanks to the Obama administration, however, there is hope on the horizon. There is talk that the administration will be offering a tax relief package that includes a $4,000 credit to be used for college and all you have to do is perform a set amount of community service. There is also talk that Obama wants to increase the total amount of Pell Grants that one person can be awarded.

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So much for the hip-hip-hurrays on Wall Street. After it looked as if the economy was saved, things took a dramatic turn for the worse. Stocks fell fast and hard as brokers’ hopes and dreams were snatched away from them. A big drop in retail sales and a Federal Reserve report that said tight credit conditions are hurting businesses across the country definitely didn’t help the situation.

The word “recession” keeps popping up and as time passes, it really looks as if we are headed towards one. The Dow is down about 733 at the 8,577 level. Reported by the Federal Reserve in Wall Street’s little black book technically called their “beige book,” it had been discovered that the economy continued to slow in the early fall as financial and credit problems grew worse. Also, difficulties in obtaining loans have “choked growth in wide swaths of the economy.”

“Even though the banking sector may be returning to normal, the economy still isn’t. The economy continues to face a host of other problems,” said Doug Roberts, chief investment strategist at ChannelCapitalResearch.com. “We’re in for a tough ride.”

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