The Pentagon recently accused General Dynamics of overcharging the government $240 million over the last decade. The huge defense contractor has nothing on America's college students; in 1986 alone, the Department of Education will spend nearly $900 million dollars to pay off student loans in default. That's right, $900 million in one year.

Guaranteed Student Loans are a financial lifeline for many students. Nearly 3 million borrowers will get loans next year. Most will repay their loans on time, but many will not. That's the problem.

The program is large, and complicated. In a nutshell, it works like this: The federal government subsidizes banks and other lenders to make low-interest loans to students. The loans are insured (guaranteed) by state agencies and again by the federal government. The banks never lose: if the borrower defaults, the state agency pays off the loan. The federal government then pays off the state agency, so it doesn't lose either. Eventually, the federal government tries to collect from the student.

There is some good news: the default problem is not as bad as it once was. Thanks to aggressive collection efforts begun in the Carter administration, the default rate has been falling. The Department of Education now uses private collection agencies on some loans and has turned some defaulters over to the U.S. Justice Department. The Internal Revenue Service will soon begin to keep income tax refunds owed to defaulters. Nationally, the "net default rate" now stands at about 5 percent, which isn't too bad for an unsecured loan to poor credit risks who couldn't get money otherwise.

In addition, some $400 million will be collected next year from students who defaulted in the past. The actual cost of defaults in 1986, then, will be about $500 million.

But the bad news remains. Even by Washington standards, half a billion dollars is a lot of money. And even as the default rate has fallen, the amount of money owed to the government by defaulters has increased. A total of some $3 billion is now in default, a figure that has doubled in the last four years.

The amount in default may not continue to double every four years, but it will continue to increase. More students are borrowing every year. A growing number of borrowers are in community colleges and private trade schools, and these students have very high default rates. By way of illustration, Arthur Marmaduke, head of California's Student Aid Commission, reports that the gross default rate at the University of California is 5 percent, compared with 25 percent at trade schools.

Higher education groups simply hope the problem will go away; they have been unable or unwilling to suggest steps for dealing with it. Some educators even defend the defaults by noting that it is the financially neediest students who are most likely to fall in arrears.

As description, there is a measure of truth to this -- most students who default lack either the money to repay the debt or a job to help them get the cash. But as justification, the educators' argument is disingenuous nonsense -- some defaulters are simply deadbeats. While some may never have understood that they were getting a loan that would have to be repaid, others just don't bother to repay. They may feel ripped off -- they didn't like the education they got (or didn't get, as the case may be) -- but this does not justify cheating the government.

There is no shortage of ways to reduce defaults. Credit agencies could be used more effectively to monitor student borrowing and repayment. Flexible or graduated repayment options could be available for borrowers who are unemployed. The federal government could require that states garnish wages of those who default.

These are important steps, but they will not be enough. The program delegates administrative responsibility, but not risk. Reducing defaults will require taking a careful look at both banks and colleges.

Banks, for example, face no risk and their profits are guaranteed. Nothing so concentrates a banker's attention as the prospect of losing money. Since it is the government's money, they have little incentive to counsel students carefully or to seek repayment on defaults.

Colleges and trade schools should be watched more closely as well. At a handful of institutions, more than 40 percent of the students taking loans default. Such schools should be declared ineligible. This would provoke howls of protest from the affected schools, but it would also help solve the problem.

In a way, student aid defaults illustrate the policy gridlock that has stymied efforts to reduce the budget deficit. The administration argues that higher education spending must be cut, while Congress argues that it is a vital investment in our future. They talk past each other.

There is a middle ground: Cracking down on loan defaulters, making banks share some of the risk and eliminating schools with outrageous default rates would save money while preserving the program for needy students.

Student aid is an essential national priority. By failing to take corrective action we undermine public support. More important, we send a signal that it is okay to cheat the government if you can get away with it. It was the same signal sent to defense contractors. It's not acceptable for either group.