If you’ve been following this thread, you have probably come to the same conclusion as I have: this is not a “normal” year for college financing. In fact, a lot of demographic and economic factors for today’s college students and their families are colliding so fast you’d think you were watching a multi-car collision pile up on three lanes of I-75.

“What I’m noticing is the mortgage crisis has created a student loan crisis,” said Dan Wansten of Professional Education Services, which is a college financial aid consulting firm based in Grand Rapids.

It’s not just the mortgage meltdown that’s hitting American families hard. All across the nation, families have noticed higher gas prices, higher grocery bills and higher medical expenses. And here in southeast Michigan, the job market is adding further complications.

Why do you think 2008 saw a record number of college applicants? These students, and also their parents, hope that higher education will provide a brighter future. (Keep in mind that a college degree does not insure you against a disappearing job market and resulting layoffs in your career field. But that’s another topic.)

CNN reported in June that 2008 was “the most competitive year ever for college admissions.”

Of course, many of those students were also competing for the same merit-based scholarships and need-based grants.

What’s left after the free money is gone?

Student loans.

Refer back to the first piece on this thread: The rules have changed.

Now, there are many kinds of student loans. Some are federally subsidized, and have favorable interest rates or other perks. Some commercial loans or payment plans that you can work out with some colleges are basically intended at giving you more time to pay the bills. There are lots of rules ranging from how much you can borrow any given year under any given program; to which ones are only available to undergrad students; to what paperwork will be required. (Reminder: FAFSA is required for many loan programs.)

No matter how the details are written, a financial institution or agency is loaning money to your student or your family so the college bills can be paid.

And those possibilities are getting very limited, very fast.

Mr. Wansten said he has noticed a lot of changes in preparation for the 2008-09 academic year when helping his clients, who include Michigan families, arrange their household finances and navigate their way through the college financial aid system.

That MI-LOAN service that used to be available for students attending colleges and universities in Michigan? “That was the best loan we had available,” Mr. Wansten said. “It was underwritten by the state.”

That program shut down in Feburary.

Another loan program that his company worked with quite a bit had, at one time, more than 60 participating lenders. They all dropped out of the program fast – most of them within a week’s time frame.

He’s also aware of at least one college that no longer arranges for Stafford loans. “They can’t find lenders to offer it,” he said.

Now, the private college lending business, according to CNN, had risen in recent years to a significant percentage of all student loans. But here’s a snippet from that story:

True, more and more families have been opting for them – they now account for 20% of all student loans vs. just 4% a decade ago. But their popularity is mostly because of aggressive marketing and what seems like an easier application process (you don’t have to fill out the cumbersome Free Application for Federal Student Aid, or FAFSA, to get one) – not because they’re a better deal.

In some cases, the rates can be higher and credit requirements stricter on private loans as compared to your other options.

Some families traditionally preferred to borrow from their own resources: such as home equity or 401k plan. (Christian Science Monitor reports one out of four college parents did so last year.) But in this credit market, those options may no longer exist or the funds may have already been tapped out to help with other needs.

“The parents are struggling so they can’t take on that loan,” Mr. Wansten said.

So if you or your student still have loan paperwork to complete for whatever program you’re applying through, Mr. Wansten said now is the time to do it. You’ll want to know as soon as possible whether you have to go to plan B on the loan details.

In the meantime, there are some other ideas to consider. Keep reading this thread.

This is the fifth post in a series. For more information on this topic, follow my College financing 08-09 thread and also check out my college financing sidebar.