The default rate on U.S.-backed loans to college students is dramatically higher than in earlier projections, with default claims topping $1 billion for fiscal 1985, according to new Education Department figures.
Last year, the department was forced to pay about $750 million to private lenders who filed default claims. This year's figure, $1.085 billion, represents a 45 percent increase.
Education Secretary William J. Bennett revealed the figures as he sent a letter to Congress urging swift action on measures aimed at stemming the rising default rate, which he said is expected to "balloon to over $1.8 billion" a year by 1990.
"The financial implications of such an increase in the default rate are staggering," Bennett said.
The department's fiscal 1986 budget calls for $800 million in cuts, but the $1.085 billion owed private lenders because of defaults will more than offset the planned savings.
The new, revised figures seem to represent a setback to Bennett's plans for the department to assume a tough-guy stance against defaulters.
Earlier this month, Bennett announced that the department had asked the Internal Revenue Service to begin withholding federal tax refunds from anyone found in default on a student loan. Also, the department has referred the names of about 16,000 defaulters to the Justice Department for prosecution.
"We have sought to change the psychological climate -- you took out a loan and you'd better pay it back," said one official, who asked not to be quoted by name. "That change may take a little longer. It may take more effort to publicize our new collection efforts."
Department analysts attributed the higher default rate to a larger-than-usual number of 1978 loans now coming due. Also, an official in the department's collection division said the number of "high risk" borrowers increased. These included persons who attend two-year trade schools and community colleges and those with a higher likelihood of dropping out before finishing.
Department officials have also said private lending institutions may not be diligent enough in pursuing defaulters before asking the government to pay up.
The guaranteed student loan program is a staple of the government's assistance to college students. Extremely popular, it has also become somewhat politically sacrosanct, as Bennett's earlier efforts to cut the program generated protests from university campuses and Capitol Hill.
The Reagan administration has made it a top priority to lower the default rate as a means of curbing the federal budget deficit.
The newest congressional proposals, which Bennett endorsed in his letter, would require state guarantee agencies to report defaulters to consumer credit bureaus and require that the Treasury disburse student loans in installments rather than in a lump sum at the beginning of a school year.
Another proposal would make the federal government liable for only 90 percent of a defaulted loan instead of the entire amount.