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No job, no loan money. No way out? Add to ...

Most post-secondary students across Canada are settling into the first few weeks of freedom from stressful assignments and exams. But for some, the end of the school year has triggered new anxieties - about how to pay the bills.

Thousands of Canadians accumulate student-loan debt while attending college or university. Usually, they spend at least a few years repaying the money once they've entered the work force.

But the continuing economic downturn threatens to put a few kinks in the plans: Many recent graduates are struggling to find or keep full-time jobs.

Although it can be tough to meet debt obligations in the best of times, education and finance experts predict that a rising number of graduates will default on loan payments as a result of the sour job market brought on by the recession. "I don't think there's any doubt about that," said Alex Usher, director of the Canadian branch of the Educational Policy Institute, a non-profit research firm. "You're going to start seeing increases in loan defaults, more people using interest relief."

A report released by Statistics Canada last month found that half of post-secondary graduates in 2005 had an education-related loan, which includes government and bank loans.

The amount of debt varied depending on the education level, with college graduates carrying an average of $13,600, while those graduating with a bachelor's or master's degree had more than $20,000 in debt. The highest level was doctorate graduates at $25,600.

The report found that more than 30 per cent of people who graduated from college or with a bachelor's degree in 2005 had difficulty repaying their loans two years after graduation.

And "that was at a time when the economic situation was good," says Katherine Giroux-Bougard, national chairperson of the Canadian Federation of Students.

"It's a very stressful situation for many students," Ms. Giroux-Bougard said. "Either they're having difficulty getting hired in their first job, or when they do get a job they lack seniority so they're often the first to be let go if the company has to downsize."

Human Resources and Skills Development Canada, which oversees the Canada Student Loans Program, said default rates have been stable over the past two years. But officials are "monitoring these indicators very closely" in light of the recent economic downturn, spokeswoman Julie Hahn wrote in an e-mail.

Students or recent graduates hoping to lean on family for extra financial support may find that's impossible because of the losses their parents suffered in the stock market, said Murray Pituley, director of taxation and estate planning for Investors Group in Regina.

Gilary Massa, a 24-year-old recent graduate from York University, said she's concerned about how she'll manage the $400-a-month payments on her $28,000 student debt once they come due.

"It's absolutely going to be difficult to make these loan payments," she said.

Ms. Massa had a paid position as a vice-president of the York Federation of Students, but the term on the job ended last week. While she's already had a few job interviews and feels confident about her prospects, she said she will have to live with her parents for the next while. On her own, it would be too tough to make ends meet.

Ms. Massa applied and qualified for a government interest-relief program, which allows a hiatus from debt repayment. It's one of several steps the federal government has taken in recent years to reduce the debt burden on graduates.

Under the program, no payments are due and the government pays interest costs. Eligible students can take advantage of the program for up to 30 months, and those facing particularly tough times may qualify for an extension.

As well as the federal government, some provinces offer debt-management programs for students.

There are fewer options for students who have funded their education with bank loans or private lines of credit.

There is a silver lining, however. With lending rates at historic lows, those carrying education-related debt don't have to worry as much about rising interest payments. Those repaying student loans can also write off the interest on their income-tax returns.

Regardless, there's little doubt more people will be forced to default on their student loans as the recession deepens, according to experts. The number of graduates who apply for interest relief is also likely to spike, which means loan programs will become more expensive for governments to operate. Mr. Usher said he fears the surge in costs may lead governments to reduce spending on loan programs, with major consequences for prospective post-secondary students.

"We re going to see very big increases in government expenditures on student aid," Mr. Usher said. "But it may make them cut back."

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