Education Secretary William Bennett's Income-Contingent Loan program (ICL) is an "admirable" idea that would make college education more broadly available, save the government money and be fairer to both students and taxpayers.

But according to an economics professor who has studied it, there is one small problem with Bennett's experimental scheme. It "cannot work."

Under the pilot scheme, the Department of Education will, over a five-year period, grant an average of $500,000 a year to 10 participating colleges for a student-loan revolving fund. Students can borrow up to $17,500 each to be repaid after graduation at rates based on income. Interest would be pegged at 3 percent above the 90-day Treasury bill rate.

The theoretical result is a manageable repayment schedule that would reduce loan defaults, even for graduates who pursue less lucrative careers, while shifting the cost from taxpayers (many of whom have not gone to college) to the primary beneficiaries: the students themselves.

"In fact," says Clemson University's Robert J. Staaf, in a study prepared for the Heritage Foundation, "the ICL program likely will lead to a much higher default rate than the Department of Education projects . . . and result in significantly higher payments for most students choosing ICL."

In short, Staaf argues, the experiment "will provide little or no useful information on how a comprehensive ICL program would work."

The key reason for this gloomy projection is that the voluntary ICL pilot program will coexist with the existing campus-based direct student loan program. But unlike the existing scheme, which mandates a 10-year repayment schedule at a fixed interest rate, ICL's interest rate would fluctuate with the market, thereby shifting from the government to individual borrowers. In addition, while payments, based on income, could range from zero (for unemployed graduates) to a maximum of 15 percent of income, there is a chance that ICL would not even replenish itself.

Meanwhile, interest would continue to run, boosting the overall cost of the loans and eventually leading to defaults and bankruptcies, Staaf argues.

"Under almost any set of assumptions," he concludes, "a student who chooses an ICL over a guaranteed student loan is going to be worse off. . . . In fact, the five-year program will reveal very little, except perhaps that the students who enroll in it know little about financial principles."

Bennett's notion is that decreasing student subsidies will serve to dissuade marginal (or marginally interested) students out of college, thereby inducing colleges to lower costs in order to attract students.

But, according to Staaf, that wouldn't happen so long as ICL remains a voluntary option. "It is only likely to come about if the government withdraws completely from the loan business and eliminates subsidies to all but a small minority of needy students. The Department {of Education} should be focusing on this political task, not on an experiment that cannot work."

Most of Staaf's criticisms of the program would disappear if (1) ICL were the only federally subsidized loan scheme available and (2) interest were pegged at the bare minimum necessary to maintain a revolving fund.

Though a number of critics have lambasted the Reagan administration for cutting back on federal loan programs, I have no problem with requiring students to finance their own education. After all, the investment-in-human-capital arguments notwithstanding, the students themselves are the principal beneficiaries of their subsidized education.

But as Staaf notes, the ICL's fluctuating repayment schedule, based on T-bill rates, may make the payments unacceptably high.

My preference would be to set the repayment interest at a rate just adequate to cover projected inflation, while retaining the income-contingent feature of the Bennett scheme. I would also use the Internal Revenue Service as the collection agency.

Instead of sending students scurrying for private bank loans, let them borrow directly from an ICL revolving fund of sufficient size to accommodate all students who, knowing that they must repay what they borrow, would still see college as a worthwhile investment.

Such a plan would do nothing to reduce the federal deficit. But why should it? The point is not for the government to make money off student loans but merely to avoid losing very much.

After all, while maximizing the opportunity for college is clearly in the interest of individual students, it is in the collective interest as well.