The Washington International Hostel, established four years ago in the dilapidated Franklin Park Hotel, is "a little shabby . . . but the price is right," a young Swiss woman said last week as she sat in the lobby and scribbled a postcard to her parents.

The eight-story hotel at 1332 I St. NW. which is about 50 years old, has dirty windows and peeling paint and is located in the heart of the city's porno district.

But it also is next to a Metro subway station, within walking distance of most of Washington's museums and monuments and costs only $6 a night, by far the cheapest lodging available in the Nation's Capital. The hostel is one of 250 owned or affiliated with American Youth Hostels Inc. (AYH), and the location and prices helped make it the country's busiest hostel last year, with approximately 120,000 overnight visits.

The location also limits the hostel's future. The neighborhood was considered ramshackle and depressed in 1977, when Colorado youth hostel entrepreneur Ronald A. Mitchell bought the old hotel for $450,000. But a downtown building boom has sent land values skyrocketing, and Mitchell already has received more than 100 inquiries from developers and speculators.

The hostel is now assessed at $1.5 million and considered to be worth as much as $4 million.

Mitchell said for the moment he has no plans to sell the hotel and is still making improvements. He recently signed an 8-year lease agreement to rent the hotel's top floor to AYH to use as its national headquarters. The 47-year-old nonprofit group not only sponsors hostels, but organizes hundreds of outdoor trips in the United States and abroad for its 100,000 members.

Two other new tenants in the hostel are the local AYH chapter, the Potomac Area Council, which organizes dozens of biking, hiking, canoeing and skiing trips and operates a hostel near Harper's Ferry, W. Va., and a local bicycle club, the Washington Area Bicyclists Association.

From 1967-77, AYH owned and operated Washington's previous hostel, a trio of small town houses at 16th and P streets NW. It also was one of the busiest of the nation's hostels, with 10,000 overnight visits a year. AYH sold is because it was too small and took an option on the Franklin Park Hotel.

However, the AYH board of directors was reluctant to launch a major urban hostel at a time when most AYH hostels were rural, exeuctive director Thomas Newman said recently. Mitchell, a board member at the time and owner of several Colorado hostels, offered to buy and operate it.

A major attraction of the present hostel, besides its central location, is that its $6 a night rate for AYH members is less than one-tenth the cost of many downtown Washington hotels, which now routinely charge $50 or more a night for singles and as much as $70 to $100 a night for doubles.

Hostels, of course, generally have no singles or doubles, just quadruples, sextuples and octuples -- the traditional separate-sex rooms with bunk beds.

The Washington hostel can accommodate 350 hostelers in bunk rooms. It also has 43 regular hotel rooms, which AYH couples can get for $10 a night apiece.

Hostels have rules not found in the usual hotel. At the Washington facility, for example, visitors can stay a maximum of three days. Hostelers generally are expected to provide their own towels, soap, and sleeping bags or sheets, and to help with the daily communal clean-up chores.

No alcoholic beverages or smoking are allowed in hostel bunk rooms.

Hostels also offer unusual benefits. The Washington hostel has a kitchen where hostelers can cook their own or group meals. It also has clothes washers and dryers and free bicycle parking.

It is a hosteling custom, according to the AYH handbook, that hostelers "travel under your own power -- biking, hiking, skiing, canoeing or horseback riding." But traveling under your own power is no longer a hostel requirement, and the approximately 450 guests at the Washington hostel last week had arrived by car, plane, train or bus.

Anita de Franca, a 55-year-old hosteler from Brazil who is studying journalism at a Colorado university and flew to Washington for her spring break, said, "What I like about this hostel is that it's near everything, within walking distance. And I like the price."

While most of the hostelers around her in the lobby, kitchen and laundry room were under 25, she said she has encountered many older people in hostels. "They call them 'youth hostels,' but I qualify. I may be old on the outside, but I'm young on the inside."

Most U.S. hostels are privately owned lodges, motels and hotels, like Mitchell's. AYH hopes to expand its national system of hostels with more facilities owned and operated by nonprofit groups and local AYH chapters. It is looking for historic buildings in parks and scenic spots that could be restored and leased as hostels.

Since 1978, the National Park Service has worked with AYH to establish eight hostels in federal parks around the country, including one on the C&O Canal in Williamsport, Md., and is now negotiating for 10 more that would be operated by AYH or other nonprofit groups.

A national hostel development plan has been proposed annually in Congress since 1977.

It passed unanimously in the House last year and was on the Senate's unanimous consent list, but died in the rush at the end of the last session.

Under the legislation, which has been reintroduced in the House, the Department of Interior would develop a national hostel plan, like those already established in most European countries. With help from an advisory group, Interior would recommend how a national hostel system should be established and where hostels might be set up. The hostels would be operated privately. AYH officials are optimistic that the bill will pass this year.

The International Youth Hostel Federation, to which AYH belongs, has more than 5 million members and 5,000 member hostels in 50 nations.

In the past two years, AYH has launched a vigorous expansion program, Newman says. AYH has chartered hostels in San Francisco, Los Angeles and Seattle, and is negotiating to open hostels in New York City and Boston. The New England states have about 70 hostels and Colorado has about 30, but many states will have none. California and AYH have just opened two of a proposed chain of 38 scenic coastal hostels -- to be owned by the state and operated by AYH -- that will stretch from Oregon to Mexico.

The principles behind youth hostels -- and their rates -- have remained largely unchanged since 1909, when the first hostel was founded by Richard Schirrmann, a German schoolteacher who wanted to get his students into the countryside and find them clean, wholesome places to stay. The international federation was founded in 1932.

One member of AYH's national staff, William Nelson, bicycled through New England in 1933 with New England schoolteachers who later founded the American hostel movement, Isabel and Monroe Smith. Nelson was 18 at the time, Schirrmann in his 60s.

Since 1937, when the Smiths opened the first U.S. hostel in Northfield, Mass., the price for overnight lodging has risen very slowly compared to inflation. The 50-cents-a-night bunks are gone, but many U.S. hostels still charge only $2 a night, and the most expensive, in city motels and hotels, usually cost under $10. Rates listed in the annual AYH handbook are guaranteed for the year.

Some hostels, like the AYH-owned Star of the Sea on Nantucket and the first of California's state-owned hostels at the Montana Lighthouse near Los Angeles, are lovely, restored historic buildings in scenic spots, where it is easy to get volunteer house parents and where flocks of hostelers assure the small but steady income needed to maintain the hostels.

They are the kind of hostels Newman and AYH would like to see across the country, providing hostelers of all ages with low-cost, picturesque places to stay.

Washington's present hostel is not picturesque, as owner Mitchell and his wife, Yohko, who live in the hostel, are the first to admit. But it is strategically located and cheap, he says.

"And since both the YMCA and YWCA no longer provide low-priced rooms in Washington," he adds, "I think we play an important role.