An economics major at Lawrence University can take a full-semester course on "Government Regulation." But, in just a few hours, a vistor to Lawrence's shady campus here on a high bluff above the Fox River can learn a basic lesson about regulation that may be lost on policymakers in Washington.

The lesson is this: federal regulation can make people -- law-abiding, hard-working, honest people -- feel like criminals.

To its neighbors in Appleton, and to educators around the country, Lawrence is known as a distinguished liberal-arts college with tough admissions standards and progressive traditions. It was, after all, the second college in the nation to go coed.

To the U.S. government, however, Lawrence University is just one of 7,500 schools across the nation where some students borrow federal money to pay tuition.

"The government looks at us exactly the way it looks at some fly-by-night trade school that opens up in a storefront somewhere," said Marvin Wrolstad, Lawrence's vice president for business affairs.

Largely because of those fly-by-night trade schools, the government's student-loan programs have been racked with scandal. And Lawrence, despite an exemplary record of handling its students' loans, has been snarled in the ensuing regulatory crackdown.

"We have to file affidavits for every step of everything we do," Wrolstad said. "We have to affirm that we keep records on our [former] students, that we contact them to collect these loans. We even have to file affidavits affirming that we make our collection calls at times when the students might be home."

What Lawrence has run into here is a basic principle of federal regulation, a principle that might be called the "least-common-denominator rule."

Because the government has to regulate everybody equally, and because some regulated people and institutions are corrupt, regulators are often forced to act as if everybody is corrupt.

To individuals and businesses in this bustling city of 60,000 in east-central Wisconsin, that principle is logical, but it is also repugnant. It is the aspect of federal regulation that stirs the deepest resentment here. It comes up almost every time you ask people about the government and its regulators:

"You're guilty until proven innocent." -- Don Utschig, president of a construction firm.

"Basically, they don't trust you." -- Bob Wick, manager of a paper mill.

"It makes you feel like a criminal. Like a little irresponsible kid, or like a criminal." -- Arnold Thomas, barber.

"You live in a mode where there's always a suggestion that you're not within the law." -- Marvin Wrolstad, college administrator.

"It's like they found one car with heroin in the trunk, so now they search your car, too, every time you use the road." -- Al Jensen, gas station owner.

"The basic assumption is you're guilty." -- Joyce Bayer, banker.

This feeling is exacerbated by the equally common perception that government inspectors are determined to find something wrong in every inspection they make.

"They can't ever audit you and not find anything," said Paul Holmquist, an insurance executive here. "They've got to justify their time."

Regulators in Washington are familiar with the least-common-denominator rule and the way it grates on the sensitivities of the regulated. But they have found it diffcult to design a system of regulating that take individual differences into account without underminding the principle of equal enforcement of the law.

"The problem with the student-loan regs," said James Moore, the deputy assistant secretary of the Department of Education who is responsible for them, "is that Congress directs us to include in that program everybody from Lawrence University down to some one-room barber college in the center of Los Angeles. And then Congress says we have treat everybody the same. So we end up writing a lot of regs at the least-common-denominator level just to get some minimal compliance from the barber college."

Carol Tucker Foreman, who was an assistant secretary of agriculture in the Carter administration, gave the question considerable thought during her government career, and concluded that, "The principles of diversity and uniformity will inevitably be in conflict. . . . Over the years many unnecessary regulations have undoubtedly crept in . . . but it is difficult to see how . . . one could alter regulations to suit different situations without running the grave risk that such alterations would soon become much more abitrary and capricious than the regulations they replaced."

Foreman proposed a classic liberal solution to this dilemma: the regulations should not be changed, but the government should provide "significantly more aid" to help regulated businesses comply.

The Reagan administration, in contrast, is talking about a different approach. The new Republican regulators want to turn large segments of Washington's regulatory jurisdiction over to the states, in the hope that localized regulation might account for local and individual variations better.

"There's a very strong feeling on the part of the White House that a lot of [regulations] ought to be decentralized," said James Miller, director of the White House Regulatory Relief Task force.

Miller acknowledged, though, that localized regulation leads to complaints about unfairness, when a business in one state finds that it is subjected to tougher rules than a competitor in another.

Those complaints tend to be resolved by standardizing the regulations, which again brings regulated individuals and businesses up against the least-common-denominator rule.

Another approach the Reaganites have in mind, Miller said, is a shift toward regulations that dictate the desired result but do not prescribe how the result is to be achieved. A change like that, Miller suggested, would eliminate some of the detailed directives that make people feel regulators are watching over the shoulder at all times.

Another idea is to rely more on regulation by sample -- the kind of enforcement the Internal Revenue Service uses to police taxpayers. Rather than force every business to certify every step it takes to comply with regulations, this proposal would trust businesses to comply, with regular audits of a sample of the affected business community to keep everyone honest.

While Washington debates these questions, people in Appleton continue to chafe under a system of regulations and certifications and verifications that makes law-abiding individuals and businesses feel as if they are always under suspicion.

"When we put in our scattered-site housing," said Bill Brehm, Appleton's city planning director, "the HUD guy came up . . . and we had to drive him all over the city to prove we weren't putting this housing in slums. Well, hell, we don't have any slums here like you find in Chicago or a big city. And anyway, it just disturbs me that the government thinks we're the kind of people who would do something like that."