Sen. Daniel Patrick Moynihan (D-N.Y.) looks at the growing Social Security surplus and sees tax cuts for the workers of today, not paper cuts in the budget deficit of the 1990s or retirement checks for the aged baby boomers of tomorrow. Economist Barry Bluestone has another view: A pool of spare cash for education loans for college students and older workers.

Bluestone, who teaches at the University of Massachusetts-Boston, proposes touching the sacred cow of American politics because he foresees multiple benefits for the nation, such as wider access to higher education and job training, stronger international competitiveness and, possibly, a higher balance in Social Security when the elderly population reaches a peak in the next century.

"People are always jittery when you mention Social Security," Bluestone acknowledged. "We have to get over the initial reaction, which will be, 'Woof, not with my Social Security funds.' "

He added: "I don't think there is strong opposition to the program except that it is newfangled. . . . You can't think of a better investment for the Social Security fund . . . than investing in our own people."

The proposal, drafted by Bluestone and other academics under the auspices of the Economic Policy Institute, a liberal think tank, would carve a revolving loan fund out of the Social Security surplus and permit any American to borrow up to $40,000 to finance a college education, apprenticeship or job training. Unlike the main federal student loan program, eligibility would not be need-tested.

The new loans would be repaid over 25 years, compared with the five to 10 years allowed now. Instead of fixed installments, payments would vary with a person's earnings and would be made to the Internal Revenue Service through payroll deductions. Repayment rates cited in a briefing paper ranged from 11.6 percent to 1.1 percent on the first $50,000 in annual earnings.

An estimated 9 million students would take such loans each year. That figure includes about half the students in college and assumes that 3 percent of workers would pursue vocational training.

The new loan program initially would use 15 percent of Social Security reserves and, near the turn of the century, a high of 42 percent. At the end of last year, the surplus stood at $162 billion and is projected to swell in the next century until baby boomers retire.

Bluestone predicted that the loan fund would increase the number of well-educated workers, spurring economic growth, and increase their earnings and thus their Social Security contributions. In the year 2039, he said, the loan fund would begin to turn "a bit of a profit" that could go out as Social Security benefits.

The rate of return to Social Security would be "precisely the same" as it is now, he said. Borrowers' interest rates would be tied to that for U.S. Treasury bonds, which currently are the vehicle for tapping the surplus to finance government operations. The portion of Social Security reserves used for education loans no longer could be used for government borrowing or reducing the deficit in Gramm-Rudman-Hollings calculations.

Optimistically, Bluestone projects the default rate -- a $2 billion problem in student loan programs -- "would be quite low" because of Internal Revenue Service collection, the flexible payment schedule and tighter federal oversight of academic accreditation.

The new loans would replace two federal programs, Perkins and Stafford loans, creating a savings of $5 billion that Bluestone proposes be diverted to grant and work-study programs for low-income college students.

The federally subsidized Stafford loans are made by commercial banks. A representative of the Consumer Bankers Association said that banks would resist "a program like this that would leave no role" for financial institutions.

The Education Department, in a vague statement on Bluestone's proposal, called any discussion of it "in itself useful." Education Secretary Lauro F. Cavazos has proposed expanding a similar "income contingent loan" program that is being tested at 10 colleges, but is not bankrolled by Social Security.

Income-related loans have drawn support from across the political spectrum, having been embraced by conservative economist Milton Friedman, the Reagan administration, Massachusetts Gov. Michael S. Dukakis (D) during the 1988 campaign, and Robert D. Reischauer, when he was at the Brookings Institution. Now director of the Congressional Budget Office, Reischauer also cited Social Security as a source of capital for a loan fund.

But Bluestone's proposal, predictably, was not well-received at the Social Security Administration, where a spokesman repeated the agency's general opposition to using Social Security funds for unrelated purposes.

"Basically, we've always opposed that," spokesman Frank Battistelli said. "We believe that money should be kept in reserve to cover any exigencies that exist."

Evelyn Morton, a lobbyist for the American Association of Retired Persons, said an education loan fund would put Social Security funds at risk for unrelated purposes. "That would be viewed by many as breaking faith with a promise that has been made," she said.

A Moynihan spokesman said the senator had not reviewed the proposal, but guessed that he would be "completely against it" because he has called for a rollback in Social Security taxes.

Bluestone maintained the surplus is large enough to sustain a payroll tax cut and an education loan fund.

Bluestone said he does not have a strategy for steering such a social policy through Congress. The briefing paper only suggests that Congress could adopt the loan fund when it reauthorizes higher education programs next year.

Asked about the apparent lack of strategy for advancing the proposal, Jeff Faux, president of the Economic Policy Institute, replied: "Well, the function of a think tank is to think."