Where does the change go in blockchain.info when using a paper wallet? When using a paper wallet as watch only  via block chain.info and you send partial amounts out from it. Where does the change go? 

I've read you can lose all your coins if the client doesn't handle change properly. What's a scenario that could lead that to happen? Which apps don't handle change properly?
(I assume here that you have a simple single-address paper wallet, like the ones from BitAddress.org. I also seem to have understood that you use the Blockchain.info app to make the payment.) 

You should be able to decide yourself where the change goes (using the web-apps's Custom Send feature), but Blockchain.info's default behaviour is to send it back to the original address. 

Especially if you have a paper wallet with only one address, Blockchain.info won't generate new change addresses for you. 

So this is what happens:


  Let's say you received two transactions on your paper wallet. One for 2 BTC and one for 3 BTC. When you try to send 1 BTC to someone, the Blockchain.info app will:
  
  
  Take an output that has at least 1 BTC. This can be done randomly, but I suppose it will take the oldest one. If you don't have an output large enough, it will combine multiple ones until they have at least 1 BTC all together. Suppose the 3 BTC output is chosen.
  It will make a new transaction with the 3 BTC as input. It will create an output for the 1 BTC you want to send to another address. It will then have to specify what to do with the other 2 BTC.
  Considering that it only knows about one of your addresses, it will use this address for change. This means an additional output is created for 2 BTC, sending them (back) to your paper wallet address. (Note that Blockchain.info charges the minimal transaction fee by default, so this will be deducted from the 2 BTC change.)
  


So basically, you don't have to fear for losing your coins. And you will be able to spend the change from your paper wallet automatically.

However! This type of use, is not what paper wallets are intended for. Using Bitcoin, you are supposed to use a new address for every transaction. This is to ensure your privacy. When you use your paper wallet like this, everyone you ever made a transaction to or that ever made one to you will know your balance. This is obviously not what you want. Paper wallets are originally intended to store an amount of coins safely offline. When you want to use them again, your privacy ensured only if you send them back to a regular wallet that uses change addresses like it is supposed to.