[chimeracoder]

> You can pay back either 10% of your discretionary income, for 20 years and then the remaining balanced is forgiven (if a balance remains).

For federal subsidized loans, forgiveness of loans means that it comes out of taxpayer money.

For people talking about student loans as a bubble and wondering when it will pop and what that will look like, this is the most likely mechanism for that to happen.

This is a really serious principal-agent problem, because schools have only indirect incentives (at best) to make sure that their graduates are employed at rates which allow them to pay back those loans in full. On the other hand, the federal government is essentially incapable of denying people these loans as long as they meet the financial criteria.

In that light, it's not hard to see how tuitions have spiked, and student debt along with it. Schools are essentially incentivized to take out massive loans against their students, which amounts to another source of public funding for universities.

[learc83]

There's only about a trillion dollars in Federal student loans. It's nothing compared to the real estate bubble.