Student loans: default rate begins to drop

More former college students are opting to pay off those federal loans that helped get them through school.

The default rate on campus-based National Direct Student Loans (NDSL), a high 17.3 percent only four years ago, is slowly but steadily dropping. Last year it was closer to 12 percent. Though the official tally for the last fiscal year will not be released by the US Department of Education for another month or two, early indications are that the default rate is about 11.2 percent.

Much of the progress is due to the improved management of the program and tighter federal rules on campus efforts to keep track of and collect the debt.

''The programs have matured - we're growing up and learning how to do it better,'' says Dennis Martin, assistant director of the National Association of Student Financial Aid Administrators.

''There's been a general consciousness-raising,'' adds an Education Department spokesman.

There was a particularly dramatic drop in the default rate in 1979, when the Department of Education allowed schools to pass uncollectable loans over to Washington. The campuses net no direct money from the move. Any funds collected by federal officials go into the US Treasury rather than into campus revolving loan coffers. But schools, in effect, can write off bad loans by the move, and in some cases improve their standing to receive new NDSL money.

In the early days of this 24-year-old student loan program, some colleges did not bother to bill students on time or go after borrowers who did not pay up. Now students are more frequently reminded of their obligation. Usually an interview is required before the student gets his check. Many colleges work with private billing and accounting firms and with commercial collection agencies.

''Having a collection agency after you, as opposed to a school, can really step up the pressure,'' observes Terry Hanlon, president of American National Educational Corporation, a bank-owned billing and accounting service which works with some 450 campuses in keeping tabs on about $1 million in NDSL loans. He considers the current student payback rate ''impressive'' in light of high unemployment rates and compared to a 20 percent default rate on Small Business Administration loans to new businesses.

Colleges, which often dispensed loans and tried to collect them from one student-aid office, now find it professionally wise to divide the chores. Usually the burser's or business office takes up the billing and collection job.

Many campuses have devised their own collection techniques. Though somewhat controversial from an invasion-of-privacy standpoint, some schools add peer pressure to collection efforts by asking students on federal work-study programs to phone borrowers.

Chicago's Loyola University routinely refuses to release academic transcripts to any student defaulting on a loan. Recently a former student whose NDSL loan had been outstanding since 1965 arrived on campus with a certified check to pay off the entire loan with interest. He wanted to go to graduate school and needed the transcript.

In Loyola's case, the NDSL default rate was a high 28 percent four years ago, but is now closer to 7.5 percent. Loan-billing manager Mary Bushman credits a step-up in equipment and personnel dealing with debt collection and a new ability to turn over bad debts to Washington.

But she also says the reasons students give for nonpayment have changed significantly. Technical excuses, such as not receiving a bill on time, have given way to complaints that jobs are impossible to come by and that the debt must be deferred or cancelled.

''We're not projecting any more dramatic decreases in the default rate,'' she says.

The money paid back on NDSL loans goes into a revolving campus fund to be loaned again to new students. And the federal government will dispense another $ 178 million in program money to colleges this year. But the Education Department recently released the names of 436 institutions, mainly trade and technical schools and small community colleges, which have default rates of 25 percent or more and will not be eligible for any of the new money. Other schools with a default rate of 10 percent or more will also net proportionably less new money.

Despite such punitive measures, many on Capitol Hill think the federal-loan payback record should be even stronger. The default rate on Guaranteed Student Loan money, disbursed by banks, is only about half that of the need-based NDSL program. But $1.7 billion of the GSL money and $896 million of the NDSL funds are in default.

Congress is considering several bills to crack down further. One bill would allow deduction of default debts from government employee paychecks. Another bill would deny federal aid of any sort to students with less than a ''C'' average.

Student aid cuts this year are not nearly as deep as the Reagan administration first proposed. But many experts in the field predict that the real test may come in early 1983, when Congress is expected to take a hard new look at student aid.