US attaches tax refunds to collect on defaulted student loans. An upset graduate tells what happened when she didn't pay

Rita Calloway says she didn't mind when the government kept her tax refund to repay her federal student-loan debt. But she does resent the government's classifying her as a ``deadbeat'' and tarnishing her credit record. So far this year, the United States has recovered $135 million from government-loan defaulters by applying their 1985 tax refunds to their unpaid debts. An added $30 million was recovered from 50,000 defaulters who voluntarily chose to pay up rather than have their refunds attached by the Internal Revenue Service (IRS).

The results of this first-year pilot use of tax refund ``offsets'' were announced jointly last week by the Office of Management and Budget (OMB), which is overseeing government-wide implementation of credit-management reforms, and the Department of Education.

OMB Director James C. Miller III says that the ``tax-refund offset mechanism is used when all other attempts have failed. Delinquents should take the process seriously. Government loans are predicated on the same principles as a car note or a mortgage. The attitude that these are gifts is just plain wrong.''

But Ms. Calloway says the last thing she wanted was to be given anything. She says she worked her way through undergraduate school. ``I was really proud of myself. I thought I had really done something.''

But graduate school was another story. The tuition was high and she had to borrow $10,000. After graduation, she kept the $12,000-a-year part-time job that she had held during graduate school. ``It was the only job I could find, and I had these loans to pay off,'' she says.

She began paying back the loans, she says, but when the company she worked for lost its federal contract, she lost her job. She did not find work until a year and a half later. Meanwhile, she says, the government disregarded her numerous letters and phone calls, defaulted her loan, and turned it over to a collection agency.

Congress has given the IRS authority for two years to attach the tax refunds of delinquents. Education Secretary William J. Bennett says he hopes this authorization is extended. ``We want to do this again and be more ambitious about it,'' he says. ``Until the government acted affirmatively, people thought, `If I don't pay, who cares?' '' He says that in the future more accounts will go to collection agencies for more ``aggressive collection.''

Ms. Calloway says she experienced aggressive collection tactics amounting to harassment. She says she had been told that her loan would be deferred for a year because of financial hardship. But ``six months later I was notified by a collection agency [that] I'd better pay the loan. They [threatened default] and refused any kind of payment plan. They wanted me to take out another loan. . . . They were the most unprofessional people I had ever dealt with,'' she says.

Last January Calloway's account was sent to the IRS along with 750,000 others, involving a debt of $1.6 billion. Of the accounts, 605,000 were certified for offset, including Ms. Calloway's. Bennett says the accounts were sent because the common debter attitude was ``this is the only way you're going to get my loan back.'' Calloway contends that attitude was formed by the government's lack of concern for individual citizens.

During the first 17 weeks of this year, tax refunds due to 248,000 individuals have been offset at an average of $544 per person. The OMB projects another 20,000 accounts will be offset recovering another $13 million, bringing the total to $148 million.

Five agencies participated in the program with the Department of Education recovering the most debt. The Veterans Administration recovered nearly $8 million; the Small Business Administration, $6 million; the Department of Housing and Urban Development,$5 million; and the Department of Agriculture, $1 million.

Bennett says this program is a ``valuable lesson'' for federal student-loan seekers and adds that stricter scrutiny of future borrowers will be the rule.

The defaults have cost the US nearly $5 billion, the secretary says. Taxpayers will have to pay about $1.3 billion this year for defaulted loans.

Calloway says the only lesson she learned was ``not to borrow a dime from the government.''