Maryland Gov. William Donald Schaefer plans to ask the General Assembly, which convenes Wednesday, to create a new type of scholarship to guarantee that the state's neediest students can afford college.

Schaefer's proposal, intended to refurbish a financial aid system that has been criticized as ineffective and unjust, would phase out the state's main scholarship program, which awards money based partly on geographical location and Scholastic Aptitude Test scores.

The current program would be replaced with so-called Free State grants that would increase subsidies by $14 million and be distributed entirely according to financial need.

The plan would shift aid toward minority and economically disadvantaged students, who are underrepresented in higher education, and away from students at higher-priced private colleges. As of 1995, the Free State program would promise undergraduates below the poverty line enough money to attend a public college or university without taking out a loan.

"The governor is a firm believer in providing people with the ability to attend college," David S. Iannucci, Schaefer's chief legislative aide, said yesterday.

But the governor, who is trying to juggle the state's faltering budget, does not plan to seek any additional money for the new programs for at least a year, Iannucci said.

Higher Education Secretary Shaila Aery has requested for next year a $500,000 increase in the state's $21.4 million financial aid program, mainly to offset tuition increases.

If adopted by the legislature, Schaefer's proposal would represent the most significant change in years in the state's approach to helping undergraduates meet escalating college costs. It would combine additional money with stronger efforts to encourage junior high and high school students to prepare for college.

But the governor is not advocating any revision of the most controversial facet of Maryland's current aid programs: more than $6 million in scholarships that senators and delegates hand out directly to constituents.

The legislative scholarships, unique in the nation, do not require the politicians to disburse money to students who need it most, and some legislators have given help to relatives and the children of political friends.

Iannucci noted that most legislators want to keep their scholarships. "Engaging in that kind of battle would very possibly endanger the positive benefits" of the other changes Schaefer favors, he said.

Schaefer's proposal embraces much of the advice of Aery and the Maryland Higher Education Commission, which last fall finished a lengthy critique of the state's college scholarship system.

Schaefer has rejected Aery's recommendation to create new College Savings Bonds, a $1 million incentive to middle-income families to set aside money for college.

He is recommending new scholarships for part-time students, who account for more than half of Maryland's undergraduates but are eligible for little of the state's finanical aid. He also is proposing a change in a Distinguished Scholars program by trying to identify the state's brightest students earlier in high school to reduce their chances of being lured to colleges out of state.

In addition, Schaefer is recommending a consolidation of 16 small scholarship programs, open to undergraduates preparing for professions with employee shortages, such as nursing. And he wants to create two new small programs -- one to subsidize tuition of undergraduates who do certain types of volunteer work, and the other to forgive the college loans of graduates with a bachelor's degree in math or science.

The biggest change, however, would be in the state's main college grants. In addition to guaranteeing tuition for very poor students, the Free State scholarships would meet as much as 40 percent of the financial need of low- and moderate-income students, up to $3,000. The state's current General State Scholarships provide up to 30 percent, with a limit of $2,500.

A spokesman for Aery estimated that the new program would serve nearly 14,000 students, about 3,800 more than currently participating.

The Free State grants would be distributed without considering where students live. Currently, half of the $11 million General State Scholarship funds are distributed evenly among the state's legislative districts, regardless of how many poor students are there.