Here in the UK, you have to earn over the equivalent of $26k per year to start paying it back and then it's 9% of your income over that. I believe it is then written off after 30 years. So the risk of a crisis in this version of the system is low since the terms are so generous.
The other poster covers it in greater detail, but after 6 months they expect payments, and deferring them only lasts so long (and I don't know how long).
And you can't ever get rid of them.
The answer still isn't to bail everyone out. It just perpetuates the problem. If higher education is to be a for profit business (at least in many cases) you can't create artificial lending markets like student loans, it just causes the absurd bubble that has popped up in the US. It should be flat "heres the cost, go try to get a loan for it" like you would a car or house. When the government starts handing out free money no questions asked with a repayment plan, schools just pile that on top of their tuition fees as profit.
It doesn't hurt that we really should be looking to having online certifications for either free (MIT courses, etc) or extremely low cost. While the K-12 years also have a function as day care, hopefully adults don't require that cost, and stuffing them into giant brick buildings often thousands of miles away for months on end is really inefficient.
The answer is to let these loans default. That's how the lending system should work. No bailouts, but simple defaults.
You as a lender are responsible for factoring in the probability of a default. If you haven't - sucks to be you. Same goes for government loans, e.g. you create an institutionalized Banking system (like the Federal Direct Student loans).
And if you survive the coming mass default (http://www.zerohedge.com/news/2013-02-28/delinquencies-stude...) - without gov. bailouts - you'll have learned a valuable lesson on lending: Don't give out ridiculous loans on ridiculous terms to people who can't afford them. And rest assured that the education system will find a way to adapt - probably by making education a lot cheaper again.
In an aside, loans made to college kids to get a quality education is not a ridiculous loan on ridiculous terms to people who can't afford them.
That seems perfectly appropriate to me (and I assume to you), but this lack of being able to predict the future income stream of an individual is a large driver in making them not dischargeable, because that allows the product to exist.
Because I agree with you(r presumed position) that these are not ridiculous loans and that their availability should be encouraged, I'm strongly in support of the terms necessary to make them available.
> "In an aside, loans made to college kids to get a quality education is not a ridiculous loan on ridiculous terms to people who can't afford them."
I'd like to disagree with you and I believe that a default rate of > 13% (and rising sharply - http://www.ed.gov/news/press-releases/first-official-three-y...) supports my statement.
That is colossally stupid. We need a better way to certify people for things than wasting years and tens of thousands of their dollars on this nonsense.
There would be very few people who qualify for student loans if we treated them the same as traditional loans, and virtually all of them would be the children of the wealthy or upper middle class.
> There would be very few people who qualify for student loans if we treated them the same as traditional loans
True, but that is not the problem - the problem is that college and education costs have risen almost exponentially. This problem will certainly not be solved by pumping massive amounts of bad loans into the bank accounts of already overpaid colleges.
The prices would drop. Less people would be able to get in college, absolutely, but those people are the ones most likely to graduated with 50k+ in debt they can't fathomably pay off, especially when they get degrees outside STEM.
The only downside I see is that right now, there is a strong sense of scholarly meritocracy going into the college system because, since usually it is just trading loans for grants and scholarships, you get the peak number of people applying - if some people are locked out for financial reasons, and they can't get the scholarships to fund an entire education, they just end up never going, even if they have great potential and discipline.
But in the end, college is a rigged market, just like telecom, oil, banking, etc are right now. There is a billion dollar industry invested in keeping the status quo in check, and any changes to stafford loan policies inherently have to come from the federal level due to their nature, and those are the most easily bought politicians of them all. I don't see the situation changing any time soon for that reason.
To begin with, in the US, it's important to distinguish federal loans from those issued by the private sector. The former are issued by the government, the latter by private institutions (banks, et al).
Federal loans : The IBR (income based repayment) plan was recently introduced [1]. It appears similar to the UK plan, except the implementation details are different (15% of income over 25 years). There are of course eligibility requirements that (shock of shocks) are not always crystal clear [4]
Private loans : nothing whatsoever AFAIK, nor much planned future legislation
Lastly, it's important to note that both public and private US student loans are notoriously difficult to have discharged, including in the event of bankruptcy. The bar is set high enough to almost be considered de-facto impossible [5] (opinion).
This, IMO, makes the astronomically high figure presented here all the more alarming. An affordable education is possible in this country, but we haven't been good at educating the public in this regard (ironically, I guess).
For a general breakdown on the differences between federal & private loans, see the linked chart [6]. While I guess I should have known this already, I was surprised to note that some privately issued loans come bundled with pre-payment penalties.
[1] http://studentaid.ed.gov/repay-loans/understand/plans/income...
[2] http://en.wikipedia.org/wiki/Income-Based_Repayment
[3] http://articles.chicagotribune.com/2013-02-12/business/sns-2...
[4] http://www.nytimes.com/2011/10/27/your-money/student-loans/e...
[5] http://www.nytimes.com/2012/09/01/business/shedding-student-...
Note: Congress did pass a law that stipulates that student loan debt cannot ever be included in a personal bankruptcy. The loan, theoretically, can and will follow you for as long as you live until you pay it off.