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Need Advice on Default

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Need Advice on Default

I started back to school and of course I filled out my loan package, after a few weeks they say I get nothing..Imagine my surprise. Here's what has happened...

   In 1987 I took a Stafford Susidized student loan, the school I went to did,  for.. (and this info is straight off the gov. site) $1313.00 to continue my education. Well, life happened, I didn't finish and defaulted. So the first error here is they say I graduated, but  I did not graduate. 

   Moving along  to the 1990's I was working and I file my taxes and bam...they hit me for the defaulted loan, and I'm ok with that..I owed the money.

   Now let's move along to 2014, I am now in school and want to get a grant, not a loan...a grant. So, when I filed, it comes back saying that I defaulted on a loan, I never paid any of it, that they sent it to collections. So....I called them two days ago and they say that I still owe them $40.00 and if I send it to them they will send me a letter so I can then get the grant. My biggest issue here is why, when there was more than enough to pay it from the first tax return, didn't they take it, or, why didn't they get it the same way they got all the rest of it by hitting my income taxes. I have been working every single year and filing taxes AND getting nice returns, So can someone explain to me why I should feel good about this.   I feel like they are holding my grant money this something that goes on with regards to these grants and loans?? If anyone can shed a little light on this I be so happy . It really doesn't make sense to me. Thanks everyone and anyone!

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