Government Gets Tough on Defaulters

The U.S. Department of Education will send more than 80,000 letters this weekend warning students who have defaulted on federal loans that their income tax refunds could be seized to pay off the debts.

The latest strategy in loan collection--enacted to help finance the almost $200 billion federal deficit--allows the department to ask the Internal Revenue Service (IRS) to withhold one million student income tax refunds up to the amount owed, unless payments are made within 60 days or other arrangements are made. Education Secretary William J. Bennett announced this week.

Because 82 percent of the defaulters received tax funds in 1983. Richard A. Hastings, director of debt collection for the Department of Education, said he thinks the department is "certainly going to get hundreds of thousands of dollars back."

The new tactic has sparked concern that all aspects of student loans, from distribution to collection, could eventually become centralized in the IRS, Lyndon E. Tefft, Harvard's director of the office for financial systems, said yesterday.

Twenty-one thousand federally sponsored student loans to Harvard students, totalling $80,000, are currently outstanding. Tefft said last year alone, Harvard loaned $12.3 million.

Tefft said the federal move will not modify the University's loan collection procedures Harvard student first seek educational loans from private banks and credit unions before attempting to obtain a University loan.

Despite the high amount of guaranteed student loans (GSL) made by Harvard. Tefft said the default rate of holders is "very minor, definitely below the national average." The default rate of its student holders is under 5 percent, half the national rate of almost 10 percent.

If its collection efforts are insufficient, Harvard can pass overdue loans to the Massachusetts Higher Education Assistance Corporation (MHEAC), a private organizations. However, Tefft said the number of University loans shifted to MHEAC "is not very significant."

The State

MHEAC will assist the federal government in recovering money from some 40,000 state student defaulters--of which only 13,000 have made payments, said Joseph M. Cronin, MHEAC president.

"Students are getting the word that you can't get away from the federal government," Cronin said.

The Nation

The bulk of the nation's $5.6 billion outstanding loans in three major federal programs--GSIs, federally insured student loans (FISL) and national direct student loans (NDSL)--comes from GSI debts and student holders who graduated during the 1970s, said Hastings. "The phones are already starting to ring," he said.

Students are required to begin paying loans six to nine months after graduating from the institution for which they use the loan.

Last year 9.4 percent of U.S. student borrowers defaulted on GSLs, he said.

The default rate has remained steady over recent years, Hastings said, but because about $7 billion is loaned each year the gross amount of unpaid loans rises by about $700 million yearly. Total debts have risen recently because of an increase in GSLs distributed between 1979 and 1981.

The U.S. department decided to "really get tough" eight months ago, when it started warning 16,000 students in letters that their assets were in jeopardy, said Hastings, adding that a Philadelphia collection agency two years ago seized 90 cars of students who had defaulted