Reagan administration officials have decided to exempt the government's most extensive student aid program from federal laws governing discrimination.
Officials said they consider loans granted under the Guaranteed Student Loan program "contracts of guaranty," excluded from coverage under civil rights laws barring discrimination based on race, sex and handicap.
This latest administration turnabout would exclude from federal civil rights enforcement a few hundred schools of business and other proprietary schools whose only federal aid is GSLs, they said.
If those schools wish to discriminate against students in the future, "We can't keep them from doing it," one Education Department official said.
Yet, the administration's new stance doesn't go as far as Secretary of Education Terrel H. Bell had hoped. He wanted the government to change the definition of "federal financial assistance" in civil rights laws to exclude grants to needy students, as well as GSLs, on the grounds that the aid went to students, not directly to the schools.
That would have freed more than 1,000 schools from coverage. But Justice Department attorneys said that would not be defensible legally because the students used the aid for tuition, a benefit for the schools.
Private civil rights lawyers said yesterday they were confident the change on GSLs would be rejected by the courts, but expressed dismay at the administration's continuing apparent insensitivity to minority rights.
The administration's support for tax-exempt status for discriminatory Bob Jones University caused a furor in January.
Margaret Kohn, of the National Women's Law Center, said the latest change "is totally consistent with the administration's repeated actions to cut back civil rights enforcement." She said the switch seems to make it possible for Bob Jones students now to get GSLs.
The first hint of the new position came last Friday in a footnote in a court case involving Grove City College of Pennsylvania.
The school, which has no complaints of discrimination against it, refused to sign federal forms saying it was in compliance with sex-discrimination regulations.
In return, the Education Department tried to cut off the school's federal grants and loan aid.
The college sued to block the cuts, a lower court upheld the school's position, and the case is now in the U.S. Court of Appeals for the Third Circuit in Philadelphia.
In making the policy shift on GSLs, the administration rejected legal arguments followed by earlier Republican and Democratic administrations.
In 1976, for instance, lawyers for Edward J. Levi, President Ford's attorney general, rejected the "contract of guaranty" exclusion. They said that GSLs are covered because the government is paying huge interest subsidies as well as guaranteeing that the bank loans will be repaid.
One official involved in the decision said the Department of Education will soon propose changes in its regulations making it clear that GSLs and other federal loan programs fall within the exclusion and thus aren't covered.
"We haven't been concerned about the number of schools covered," he said. "We're concerned with the breadth of Title IX investigatory and compliance authority...We've taken the smallest step possible."
The administration took more than a year of internal debate to reach its legal position on the Grove City case. The school filed its brief in the court of appeals in December, 1980.
Early last December, Daniel Oliver, general counsel of the Department of Education, noted Justice's legal objections to dropping both grants and loans from coverage.
He argued that the decision should be made on political rather than legal grounds, saying the point made by limiting federal jurisdiction would outweigh the damage of seeming to pull back from supporting civil rights.