Students are graduating from college and university with record-high debt loads, and this is significantly hampering their ability to save and invest for their future, a new study from Statistics Canada reveals.

The report on the financial impact of student loans shows that 57% of the graduating class of 2005 had student loans, up from 49% a decade earlier. Average student debt on graduation rose to $18,800 from $15,200 during the same decade. Also, the proportion of borrowers who graduated with debt loads of at least $25,000 increased to 27% in 2005 from 17% in 1995.

These debt loads appear to be having a hefty impact on individuals’ finances in the long run.

“The accumulation of student debts may have lasting effects for some portion of graduates,” the study says.

It shows that those who had borrowed money for post-secondary education had a significantly lower probability of having savings and investments than non-borrowers. Among post-secondary graduates aged 20 to 45 in 2007, 42% of those who had borrowed money to finance their schooling had savings and investments, compared with 52% of other post-secondary graduates, all other factors being equal.

Furthermore, the study shows a substantial gap in assets and net worth between the two groups. The average amount of assets of those who borrowed money is $60,700 compared to $106,300 for those earned a post-secondary education without borrowing money. The overall average net worth of student loan borrowers is $17,500 — less than a third of the $61,900 average for those who did not borrow.

Those who’d taken out student loans were also less likely to own their homes, and when they did, they were slightly more likely to have a mortgage than those without student loans.

Part of the problem is that it often takes people many years to pay off their student debt, according to Frank Wiginton, a certified financial planner with TriDelta Financial Partners Inc. in Toronto. He notes that students who graduate are often unable to begin repaying their debt right away, since it can take time to find employment — particularly in the current economic environment.

“One of the biggest challenges is looking at how do I manage to repay it when I don’t have any income?” says Wiginton. “You’re seeing more and more students not getting jobs when they come out of school.”

He notes that the student loan program has changed in recent years to allow unemployed individuals to postpone the repayment of their loans.

When new graduates do find employment, they typically end up in positions with entry-level salaries that provide them with little extra income that can go towards debt payments. As a result, graduates end up taking longer to pay down the debt, which prevents them from making major purchases such as a house or a car, and from investing and saving for the future.

“Next thing you know, you’re 40 years old and you still don’t own anything,” Wiginton says.

How advisors can help

When working with clients who are struggling with student debt loads, Wiginton says it’s critical to conduct a cash flow analysis and budget assessment to determine where money can be redirected towards paying down the debt.

“It’s seeing where there are additional funds, where they are overspending,” he explains.

In addition, Wiginton says it’s important to help clients manage their overall debt. He encourages clients to pay down consumer debt first, since it typically carries higher rates of interest.

He also advises clients to avoid trying to save and build an RRSP when they’re still struggling with debt. “If you can’t repay your debt, you’re not going to have much of a life you can enjoy your savings with,” he says.