Secretary of Education Terrel H. Bell has lost a bureaucratic tug-of-war with the Justice Department over a proposed regulation that would have freed 1,000 colleges and technical schools from the reach of key civil rights laws.

Bell had proposed changing the definition of "federal financial assistance" to exclude student aid, but Justice lawyers recommended against it on legal grounds.

Bell's general counsel, Daniel Oliver, argued, in turn, that political rather than legal grounds should be the basis of the decision. But last week White House counselor Edwin Meese III accepted the Justice recommendation, sources said.

As a result, Justice lawyers filed papers in court Tuesday saying that the Education Department would not propose the change. The change would have made a suit filed against the government by Grove City College in Pennsylvania moot.

The college had challenged the existing regulations because the only federal aid it receives is the money its students get directly from the government or banks, in the form of grants or loans.

Bell said in a telephone interview yesterday that he couldn't discuss the White House meeting with Meese, but he said he still feels that "aid to students that is not campus-based does not constitute aid to the institution." Civil rights groups said his proposal would have excluded many schools from coverage of laws barring discrimination based on race, sex or handicap.

Bell said, "I'd like to emphasize that I do not want to do anything in any way to take any action that's going to aid or abet and encourage any institution, public or private, to get out from under the civil rights laws."

Asked why he proposed changing the regulation at all, he replied, "I think any institution should comply with the civil rights laws. This is more than compliance. This is bringing an institution under the surveillance" of the federal government. That means burdensome reports and regulations, he said.

"This may seem inconsistent," he acknowledged. "You have to realize I'm a career school bureaucrat, and maybe I have too much empathy for the school officials."

Bell added that his department still is considering whether to propose changing the definition so that schools whose students only received guaranteed loans, rather than Pell grants for needy students, would be excluded from the rules.