Gold is no longer used because governments are incapable of sound fiscal management. At the time, it was a simple choice of defaulting or dumping the gold standard. The best choice would have been to default, but governments chose to follow the long-standing tradition of fiscal irresponsibility and dump the gold standard instead.
Dumping the gold standard
was defaulting. The loans were denominated in dollars when a dollar meant a specific amount of gold. Going off the gold standard meant the payments were in redefined "dollars" worth far less than those originally promised. The loans were never actually repaid per the original terms.
The fiscally responsible choice would have been to not take out the loans in the first place. Short of that, admitting that they were in default would at least have had the virtue of honesty.