The efforts of schools to administer and collect student loans and the actions of the U.S. Department of Education for collecting defaulted loans under the National Direct Student Loan program were investigated. The General Accounting Office visited seven schools in the midwest with default rates ranging from 5.9 to 63.1 percent and obtained information on 599 defaulted loans. Six of these schools had default rates exceeding 20 percent. Information also was obtained on defaults and collections for 33 other schools in the same geographical area with default rates exceeding 20 percent. It is concluded that the seven schools that were visited did not fully comply with the department's loan collection procedures, although they did an adequate job sending bills and collection letters. It is suggested that schools need to adopt a tougher attitude toward collecting defaulted loans, and the Department of Education should take stronger actions against those that fail to do so. Schools have forwarded to the department for collection about 240,000 loans with outstanding balances of $215 million. But various problems have slowed the department's collection efforts. The department plans to contract with private collection agencies for future loan collections. Also, to motivate defaulters to pay their debts, the Department of Education will allow credit bureaus to redisclose student loan default data to the general credit industry. Additional recommendations to the Department of Education are included. (SW)