As a new crop of graduates spills out of college and university doors, another batch of financial horror stories is filling credit-counselling offices and websites such as CanadaStudentDebt.ca. Stories like that of an Ontario honours grad in sociology who is $34,000 in debt and unsure if she can afford to do a post-graduate degree. Or the tale of the unemployed arts graduate struggling to survive on Employment Insurance while shouldering $835 monthly student-loan payments.

University fees have skyrocketed in recent years, and leaving school hip-deep in debt is a growing and increasingly urgent problem for Canada’s student population.

According to a 2004 Statistics Canada report, graduates' debt loads grew 76 per cent in the decade ending in 2000. With fees up 25 per cent since that year — averaging about $17,000 for a four-year university program, according to a September 2006 Statistics Canada report — and government grants giving way to loans, debt levels are likely to have grown, too.

Quick facts

• Average tuition cost of a four-year Canadian undergraduate university program: $17,000
• Average annual tuition for an undergraduate degree program in 2006: $4,347 (almost triple the average of $1,464 in 1990-1991)
• Average debt for a bachelor degree recipient at graduation: $19,500
• Average debt for a college graduate: $12,600
• Number of grads with debts of $25,000 or more: 1 in 7
• Number of grads who have trouble repaying student loans: 1 in 4

The average bachelor degree recipient today leaves university $19,500 in the hole; a college grad, $12,600. One in seven face debts of $25,000 or more. Impoverished and frustrated, a quarter of all graduates report having difficulties repaying those loans.

Make a plan, stick to it

For students and parents hoping to avoid such disasters, the keys are planning and discipline. The first step is figuring out where to find the cheapest money, as opposed to the pricey credit widely available in the form of credit cards and lines of credit aimed at students.

Government loans are by far the best deal. "They charge a lower interest rate [than bank loans] and the interest does not start running until you've completed the education," said Debbie Ammeter, vice-president of advanced financial planning at Investors Group Inc.

What's more, you get a grace period of another six months (up to year in some provinces) once you've graduated. After that, students can take 10 to 15 years to repay the loans. Naturally, there are restrictions. To qualify, you have to meet a financial-need threshold and prove that you're a student in a recognized full-time, post-secondary program. And while you can receive as much as $9,300 a year, the majority of applicants qualify for a fraction of that.

According to Statistics Canada, the median government loan is about $5,000. To supplement that, one in five student-loan recipients borrow from other sources. And once a young person starts tapping credit cards and bank loans, things can easily spiral out of control.

Borrowing tips

If you can't make ends meet without additional credit, then make sure you borrow smartly. Look for the most flexible, lowest-interest options out there. Many financial institutions pitch deals to students, ranging from special savings accounts and lines of credit, to lower-rate credit cards. Banks are sensitive to criticism that tempting youth with easy credit can be disastrous for them. Royal Bank, for example, which has several credit cards and lines of credit aimed specifically at students, has a section on its website offering credit-management tips, including a section on "Six ways to help you pay less interest."

Rather than shun credit cards altogether, use them sparingly in order to establish a credit history. "Wise college students will sign up for a student credit card soon after arriving at college or university," advises Real College Life, a website that helps youth navigate university. "Get a low maximum balance, use the college credit card only when it's necessary — and pay off bills every month." Parents concerned about their kids' financial discipline can opt to set up a linked account that gives the student access to emergency funds. You deposit money into the account and he or she withdraws it at an ATM or through a debit card. Or you could get an extra credit card linked to your own account, which lets you monitor the spending and set limits.

Other alternatives are the new pre-paid credit and debit cards. They work in a similar way to gift cards, in that they're preloaded with cash. There is no interest to pay and no need for a credit history. As well, a parent who gives one to a child can track spending on the provider's website. But they're not cheap: one such product, MyCard, costs $39.95 plus tax to sign up, plus a $5.95 monthly "maintenance fee" and $2.95 each time you reload the card with cash.

Many experts recommend that students, and especially new graduates, consult financial professionals — who will often offer initial advice for free — on how to manage their finances. And if you hit financial trouble, don't just stop payments. Go to your bank and student loan administrator to figure out your options.

"Don't be late or disorganized in repaying," says IG's Ammeter, "because that does become part of your credit rating." And if you get really behind, learn how to deal with collection agencies. You have legal rights, but you should also know your obligations — check with the Canadian Financial Wellness Group.

And there is a consolation: Surveys consistently shows that university and college grads make lots more money than those with high school diplomas. In time, the investment does pay off.

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