Drop in Student Loan Defaults Tied to Government Crackdown

Defaults on student loans are declining as indebted graduates scramble to “do what’s right” and the government uses new tools to dig into their wages and tax refunds in case they do not.

Taxpayers are expected to spend $2 billion this year paying off uncollected student loans, down from a peak of $3.6 billion in 1991, Education Secretary Richard W. Riley said Thursday.

“After years of rising defaults, it’s going the other way,” he said.

The proportion of loans in default dropped to 15% in 1992--the latest year for which figures are available--from a high of 22.4% two years earlier.

As usual, federally backed loans for students of beauty, hair and cosmetology schools were among the hardest to recover.

The government took its biggest gamble in Nevada, where three gaming schools joined a long list of other institutions to drive up the state’s default rate on student loans to 34%, by far the country’s highest.

Louisiana (23.1%), Connecticut (22.3), Alaska (21.1), Florida (20.9) and California (20.1) were the other states where more than one in five student loans was in default.

Borrowers in Montana, North Dakota and Vermont were the best at paying. Less than 6% of ex-students in those states defaulted on their loans--defined as going at least six months without a payment.

The government has toughened student loan rules in the last few years, lowering the benchmark for penalizing schools with high default rates, garnisheeing the wages and income-tax refunds of delinquent borrowers and making it harder for them to get credit cards and other loans.

Ventura County National Bank of Camarillo saw 47.3% of its student loans in default--the highest among major lenders nationwide.