This isn't new, and it still causes the graduate's debt to increase very quickly so the risk is very real. If the gov paid the interest that would cause both moral hazard and reduce real risk on the graduate.
something to know:<p>Generally, if you are responsible for making loan payments, and the loan is canceled (forgiven), you must include the amount that was forgiven in your gross income for tax purposes. However, if you fulfill certain requirements, two types of student loan assistance may be tax free. The types of assistance discussed in this chapter are:<p>Student loan cancellation, and<p>Student loan repayment assistance.<p>Student Loan Cancellation<p>If your student loan is canceled, you may not have to include any amount in income. This section describes the requirements for tax-free treatment of canceled student loans.<p>Qualifying Loans<p>To qualify for tax-free treatment, for the cancellation of your loan, your loan must have been made by a qualified lender to assist you in attending an eligible educational institution and contain a provision that all or part of the debt will be canceled if you work:<p>For a certain period of time,<p>In certain professions, and<p>For any of a broad class of employers.<p>see: <a href="http://www.irs.gov/publications/p970/ch05.html" rel="nofollow">http://www.irs.gov/publications/p970/ch05.html</a>