Thirty-seven words written into legislation more than 10 years ago are about to reopen an explosive argument over what Congress intended when it passed the law forbidding sex discrimination in federally subsidized education. Whatever else comes out of this, it should provide a lesson to Congress about the high price of ambiguity.

The language occurs in an amendment to Title 9 of the Education Act Amendments passed in 1972. It says that "no person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subject to discrimination under any education program or activity receiving federal financial assistance."

At the center of the argument is this question: Does that cover an entire university or merely a program within it?

The question has arisen in the case of Grove City College in Pennsylvania, which refused to issue a certificate saying it does not discriminate because it does not receive federal financial aid. The Department of Education claims it does since a number of its students receive federal grants and loans. The college has argued that this is assistance to the student, not the school, and it has taken its case to the Supreme Court.

On this point, the Justice Department came down on the right side. In a brief filed last Friday, it contends that the money is tuition payment that subsidizes the school's operating expenses and is thus financial assistance to the school. Then, however, in the finest tradition of deregulation, the Justice Department took the case one unnecessary step further and argued that only the financial aid department of the school is affected. In other words, Grove City College cannot discriminate in its financial aid department, but it can in every other department and still receive federal aid.

Opponents of this position argue that federal funds are mixed in with the university's entire operating budget and in effect subsidize the entire university's costs.

Earlier this week, Rep. Claudine Schneider (R-R.I.) and 50 members of Congress submitted a brief to the Supreme Court contending that Congress intended in its wording to "prohibit gender discrimination in all aspects of the American educational system, to include entire institutions where students receive federally funded tuition assistance." It cites previous administrations' broad interpretation and numerous attempts in Congress to limit the coverage, all of which have failed.

Dr. Bernice Sandler, director of the Project on the Status of Women in Education, who worked for Rep. Edith Greene (D-Ore.) at the time she drafted Title 9, says there is no question that Congress meant to bring the entire institution under its scope. Only about 4 percent of the $13 billion in federal aid spent in 1982 was program specific and would have been covered by Title 9 under the Justice Department's interpretation.

Without institution-wide coverage, she said, schools could again restrict women's athletic facilities, programs, scholarships, equipment and travel funds. "Unless a class was directly funded by the government, and that is rare," Sandler said, "you could exclude women or give preference to men."

Women would have protection against sexual harassment only in courses funded by government money. Schools could discriminate in housing and give preference to men in admission to classes, housing and financial aid. Different policies for men and women would again be legal," Sandler said.

Schneider has gotten 225 signatures on a resolution stating that the intent of Congress was to give it the broadest possible coverage. Support, she says, is coming from "conservatives, moderates and liberals. The bottom line is education and fairness and equality."

Late last week, she met with President Reagan's top aides to urge them either to change the brief or not file it. "I made the point that substantively the position they were taking was just plain wrong and politically it was foolish, that there was no point in getting involved in a battle that I feel assured they will lose." They ignored her advice.

On Aug. 1, President Reagan went before the American Bar Association in Atlanta to herald his administration's commitment to "assure that every woman has an equal opportunity to achieve the American dream."

Equality in education is a passport to equal opportunity in life. Four days after he spoke, his administration petitioned the Supreme Court to cancel the passport for millions of American women.