How quaint Justice Oliver Wendell Holmes' famous dictum sounds today: "Taxes are what we pay for civilized society." Nearly 80 years later we have become a nation of tax avoiders. Manipulating the tax laws for fun and profit has become a national pastime.

Consider the incredible growth in Individual Retirement Accounts. Anyone may now invest money in tax-sheltered retirement accounts, and the response has been overwhelming.

Was the IRA lure the opportunity to provide for a financially secure old age? Or did the land-office business done by banks and brokerage houses in the first two weeks of April suggest something else--the desire to avoid taxes?

So great is the preoccupation with avoiding taxes that one attorney recently told The Wall Street Journal, "The biggest industry in the United States is tax shelters. If we took the energy we put into tax shelters and put it to productive use we would outproduce Japan."

Tax avoidance, as distinct from tax evasion, is not a crime. The tax code encourages certain kinds of behavior and discourages others. The savvy investor responds accordingly. Businessmen have always understood this, and individual citizens are beginning to.

In the last year or two, a new group of players has joined the game: private colleges and universities. Because they are nonprofit, tax-exempt institutions, manipulating the tax code takes special ingenuity. Schools can't buy or sell other institutions' tax losses, nor are there institutional IRAs in which to invest. Nonetheless, some portions of the tax code have helped for many years. Voluntary contributions are tax deductible, and school property is not subject to taxation. Also, wealthy individuals have used trusts to redu taxes as they establish education funds for their children.

But the inventiveness of colleges and universities is reaching new heights: they have launched a number of schemes to raise funds for students and pay investors a good return.

Last year Dartmouth College marketed tax-exempt bonds and used the proceeds to finance a student loan program. Investors receive 9 percent, and the students face 11 percent interest when they repay the loan.

Other institutions are exploring the Dartmouth approach. Private colleges in California, Illinois and Massachusetts have considered it. In some cases, state governments have established new borrowing agencies to enter the tax-exempt market on behalf of colleges. This strategy allows both private and public institutions-- traditonally a bastion of low tuition charges and strong support by the state legislature--to make use of this device.

There are other plans as well. Beloit College has instituted a "moral obligation" scholarship which students are morally obligated to repay when they graduate. Because the schollarship is "voluntarily" repaid, the "donor" may claim a charitable tax deduction.

The most imaginative plan is Bennington College's decision to "sell" its campus to a group of alumni and friends who will then lease it back to the school. Bennington, one of the most expensive schools in the country, receives a substantial amount of cash, and the "new" owners get a generous tax write-off. Everybody comes out ahead, except the U.S. Treasury.

Despite their legality, these practices raise serious questions about financing higher education. As the number of plans available proliferates, parents and students will have difficulty sorting and sifting through them. Financing of higher education will become even more complex, a prospect that no one welcomes.

And eventually there will be problems. Sooner or later a college engaged in creative financing will fail, and a cry for federal regulation will be heard in the land.

But perhaps the more troubling aspect of this development is what it says about the financial health of higher education. Colleges and universities are facing severe fiscal problems. Because of sharp enrollment declines, as many as one- third of all higher education institutions may close their doors in the next decade.

America's colleges and universities are unquestionably a national resource. During the last two decades the federal government recognized this and enacted generous (some would say too generous) programs to help students and their parents meet the costs of higher education. These programs were, of course, a boon to the colleges because they made it easier for students to attend.

But federal support is becoming more restricted, and most states are not in a position to take up the slack. That these reductions come precisely as the number of potential students begins to decline greatly complicates the schools' problems.

Nothing illustrates the perilous condition many institutions find themselves in better than the creative manipulation of the tax code. Colleges do not enjoy raising money this way, but many see no other way to do it.

Actually, these practices are an artifact of the tax code: it was not designed to accomplish these objectives, but higher education institutions respond to incentives just as individuals and businesses do. Given budgetary pressures, the use of these plans is likely to expand. What we have seen so far is simply the tip of the iceberg.

In the final analysis, financing higher education this way is public policy run amok. The federal government picks up the tab through lost revenue rather than budgeted appropriations. Neither higher-education institutions nor the federal government are well served by such fiscal sleight of hand. As it reduces revenues, it demeans higher education.

Individuals and institutions that devote their creative energies to manipulating the tax code are a sorry enough sight when they are in the private sector. When colleges and universities do it they send a message loud and clear. And changing that message will be no simple task. In the meantime, colleges and universities may begin to choose investment brokers and tax advisers with the care they now reserve for football coaches.