Grove City College, in Pennsylvania, and Hillsdale College, in Michigan, are the only two colleges in the nation to have totally freed themselves from federal regulation. They have done so by avoiding federal student grant and loan programs. In the process they have also avoided having to comply with some 7,000 Department of Education regulations.

Administrators at other colleges reportedly regard these two small institutions -- known for making what one educator characterized as "bold and principled decisions" -- with envy.

Here is some of the history of Grove City's situation:

• Grove City dropped out of the federal grant program in 1984 after successfully fighting federal attempts to impose sex discrimination regulations on colleges receiving aid.

• In Grove City College vs. Bell , the Supreme Court had ruled that the federal government could regulate only the college's financial aid office -- but even that was too much for the college.

• In 1988, Congress passed over President Reagan's veto the Civil Rights Restoration Act saying that if a single student gets $1 in federal aid, a college must comply with all higher education regulations.

• This year Grove City dropped out of the federal loan program when the Department of Education insisted that it sign a wide-ranging "participation agreement" and provide detailed financial information -- which the school's president thought was "excessive."

Grove City's 2,300 students won't see much change. A private program through a Pittsburgh bank replaces federally backed loans, with the college guaranteeing them, rather than the government. Interest rates will match the government's, but students will be able to borrow more. The college will continue to be spared the time and the cost of complying with government regulations.

Source: John Ritter, "School Puts Its Principles First," USA Today, December 9, 1996.