In the wake of the recent stock market downturn, some financial experts are warning that the times could spell trouble for UC Berkeley students seeking private loans from banks.

Investors witnessed a massive plummet in the stock market earlier this week, with many financial experts calling the drop the worst loss since 2001. The stock market shake-up added to Wall Street's other worries-the bankruptcy of global investment bank Lehman Brothers and the sale of financial management company Merrill Lynch to Bank of America.

"This is clearly the worst crisis financially we've seen since the Great Depression," said Hayne Leland, a professor of finance and management at the Haas School of Business, during a Bank of America forum yesterday. "It's really unprecedented."

While students may not feel the immediate effects, financial experts said the stock market depression will still affect students, influencing loans, job searches and even class curriculum.

"As in all cases, the financial institutions have been hurt," said James Wilcox, a Haas professor of financial institutions, at the same forum yesterday. "They make credit conditions much tighter. We've seen this across the board ... Banks have made credit a lot tighter. The amount they're willing to loan has been reduced."

Roughly 800 students at UC Berkeley received private loans this year, according to Roberta Johnson, the campus's associate director of financial aid. To date, about $8 million in private loans have been distributed this school year, while about $120 million have been given out in federal loans, she said.

"Students turn to the private loan program when they've exhausted their limits on the federal loan program," she said.

While the office does not break down categories of who takes out private loans, Johnson said foreign graduate students account for a large percentage of those who take out private loans. She added that foreign students often take out private loans of nearly $20,000.

Marcus Opp, an assistant professor of finance at the Haas school, said it was too early to know how the stock market downturn would affect students, but said there was reason to believe that banks would hesitate in issuing loans.

"The problem right now is that the banks are the ones who provide the loans and they're right now only interested in buying the most secure stuff," Opp said.

Some banks have already stopped issuing private loans. In April, Bank of America cut private loans even though it continued to distribute government-backed loans, according to Diane Wagner, a spokesperson for the bank.

While private student loans are generally not as volatile, banks will likely not engage in risky lending behavior, Opp said.

"Student loans are probably not considered as the riskiest investments as compared to mortgage loans," he said. "But at the moment they might not just be willing to take on any risk and therefore, they might just have to cut down almost all lending."

Tags: STOCK MARKET CRASH, PRIVATE LOANS