The federal squeeze.

'I TREMBLE for my country," Thomas Jefferson once write, "when I reflect that God is just." Strange things are being done in the name of justice in this long-feared year of 1984. Consider the shell game the government is playing with young lower-income Americans wishing to attend college. Let's look at two hypothetical cases.

Mary Smith, who graduated with honors from a Detroit high school this spring, is the daughter of an auto-worker and a schoolteacher. Mary wants to be a doctor, but her parents can't afford college tuition on their own. However, Mary is eligible for a Basic Educational Opportunity Grant (BEOG), and was hoping that it would permit her to enroll at the college of her choice, little Hillsdale in southern Michigan. Mary likes Hillsdale's excellent pre-med program, the fact that it was one of the first colleges in the country to enroll women on an equal footing with men, and the opportunities she would have on its nationally regarded women's athletic teams. Unfortunately, Mary Smith cannot spend her federal tuition grant at Hillsdale College. An act of Congress, reaffirmed earlier this year, with one hand gives Mary a check for her college costs and, with the other, forbids her to use that check at Hillsdale, in the name of equal opportunity for women.

It isn't that anyone has ever acused Hillsdale of sex discrimination, but that the school's principled stand in favor of genuinely private education offends the public-sector busybodies in Washington.

Bill Jones of Chicago did a hitch in the Army after finishing high school several years ago, and he is now eligible for veterans' benefits. Bill is attracted to Hillsdale because of the fine business training he can get there, and also because, as a black, he knows the school was graduating blacks as early as the 1850s. Unfortunately, Bill Jones cannot use his GI benefits at Hillsdale any more than Mary Smith can apply her BEOG there. Federal law says this is one campus that is off-limits to Bill and other recipients of veterans' benefits, black or white, male or female.

It isn't that Hillsdale College has been unfair to minorities. Far from it, as the record shows. No, the government's complaint is that Hillsdale approaches education as a private, voluntary relationship between the student and the institution. For 140 years it has said no thank you do both government aid and government control. But the state has a way of insisting on having the last word. A Supreme Court decision on Title IX earlier this year holds in effect that unless Hillsdale complies with certain federal regulations no federally aided students can enroll there.

Faced with that choice, what would you do? Probably what Hillsdale's trustees voted to do when the controversy first started back in 1975, and are now ready to do in the wake of the Supreme Court ruling. Hillsdale will protect its integrity as a private, independent college by refusing any federal bureaucratic supervision. At the same time, Hillsdale will protect the Bill Joneses and Mary Smiths by raising private scholarship funds to replace government student-aid money.

IT WILL BE costly. About one-third of Hillsdale's one thousand students last year received federal assistance. Hillsdale will have to raise nearly $1 million a year from private sources, and that figure is sure to grow in coming years. But this, apparently, is the price of real independence for a college or university in the Title IX era.

It all started when Congress passed the Education Amendments of 1972. After plodding through countless bureaucratic corridors for 12 years, these amendments were finally given their full impact when, last February, all nine Justices of the Supreme Court voted against private, independent education in a case called Grove City College v. Bell.

The story is a classic example of what Joseph Schumpeter, the great economist, called the inevitable downward trend of twentieth-century democracy: the conquest of the private sector by the public sector.

In the case of Title IX, the disguise was a seemingly reasonable requirement that any college receiving federal assistance sign a "compliance form" pledging that it does not discriminate on the basis of sex. Never mind that this makes college administrators prove their innocence, rather than keeping the burden of proving guilt on government; if a college didn't like those rules, it didn't have to take the federal dollars.

Hillsdale, which had never taken government money or practiced discrimination since its founding in 1844, assumed at first that Title IX was irrelevant to it. In the mid-1970s, however, it learned otherwise. Washington warned that to enroll even one student who received federal aid would make the institution as a whole an aid recipient--hence fair game for the compliance forms and costly record-keeping.

THIS READING of the law seemed far-fetched; surely such had not been the intent of Congress. In October 1975, Hillsdale's trustees adopted a resolution declaring the determination of the college, "to the extent of its meager resources and with the help of God, to resist by all legal means this and all other encroachments on its freedom and independence."

For several years Hillsdale College battled on alone. Gradually a few other institutions joined the fight. One of them was Grove City College in Pennsylvania, whose lawyers went to Hillsdale for help and were given lengthy verbatim sections of the legal briefs Hillsdale had already developed. That borrowed legal work has remained central to Grove City College v. Bell ever since. Hillsdale, meanwhile, the won a qualified victory in the Sixth Circuit Court about the same time Grove City was losing in the Third Circuit, so the final round of litigation bore its name rather than Hillsdale's.

The Supreme Court ruling had two parts, the decoy and the sting. Much has been made of the Court's 6 to 3 decision (the decoy) that federal aid to an institution is "program-specific"--that assistance to one department of a college or university does not trigger the Title IX compliance requirement throughout that institution.

But the sting in the case has gone largely unnoticed. It is the 9 to 0 decision that Congress did intend that schools that enroll government-aided students--even if these schools accept no direct federal assistance--should be defined as "recipient institutions" under Title IX. The decision narrows the range of choice open to Mary Smith and Bill Jones by threatening to eliminate any meaningful distinction between public and private higher education. For a Hillsdale, a Grove City, and others in that vanishing breed of colleges that remain untainted by government handouts (there aren't many of them; why does the government feel so threatened?) this decision gives the regulatory army a beachhead on the campus. Under the "program-specific" doctrine, to be sure, federal intrusion can reach no further than the financial aid offices at present. But legislative emotion or bureaucratic whimsy under a new Administration could sweep away that barrier very quickly, and the rest of the camel would be in the tent.

Mary Smith, Bill Jones, and millions like them in the next generation of college students will face a bleaker future if we don't all work to give them real freedom of choice between government-dominated and independent higher education. Hillsdale is commited to maintaining that freedom, at any price.