WASHINGTON, Jan. 15—The Reagan Administration today proposed legislation that would give local school districts flexibility in using Federal funds for remedial language programs for children with limited proficiency in English.

Under current law, only 4 percent of the Federal funds for remedial language services may be used for programs other than bilingual ones, in which students are taught in their native language. The proposed bill, which was submitted once before by the Administration, would permit local school districts to seek Federal aid for whatever programs they believe would best serve their students’ needs.

Administration officials say they do not want to do away with bilingual programs or impose any particular teaching method. They say their aim is to give local districts flexibility in designing programs. But critics fear the move is aimed at cutting back in instruction in students’ native languages.

A number of Hispanic groups, in particular, have expressed opposition to changing the current law. They maintain that Hispanic children already have the highest dropout rates and that only bilingual education can help students progress in other subjects while they are learning English.

‘Argument for Diversity’

But many schools, struggling with an influx of immigrant students, say it is not possible to offer bilingual education. And researchers do not agree on the best methods of teaching English.

This view is reflected in a speech that Education Secretary William J. Bennett is to deliver Friday in San Antonio. ”Where research does not dictate one method, the Federal Government should not dictate, either,” he says in his prepared speech.

”The fact that 20 years of research has failed to identify a single best method is itself a substantial argument for diversity, creativity and local flexibility,” Mr. Bennett says.

Under the proposed changes, he says, districts could continue using Federal funds for bilingual education or for any other method they choose.

The two other main methods are ”structured immersion” and ”English as a second language.” In the former, students are taught in English by teachers who know their native language; in the latter, they are taught almost entirely in English. #4% Cap Approved in 1984 The Federal Government provides a relatively small amount of the total funds spent on language programs for children with limited ability in English. Its contribution comes under the Bilingual Education Act, which, as originally passed by Congress in 1968, offered Federal funds for ”new and imaginative” programs to help students with limited English skills but did not prescribe a method.

However, pressure from Hispanic and other civil rights groups prompted Congress to change the law in 1974, specifying that the money could be spent only for programs using instruction in native languages. Permission for 4 percent of the funds to be spent on other types of programs was granted by Congress in 1984.

Anna Maria Farias, deputy director of the Education Department’s Office of Bilingual Education and Minority Languages Affairs, said the department had received 110 applications for funds for non-native language programs in 1985 and had provided funds for 35 of them.

Gary L. Bauer, Under Secretary of Education, said today that he was confident Congress would pass the bill soon. But opponents of the measure predicted a different outcome.

”It’s going to be an uphill battle for them, and we’re going to help keep that battle pretty stiff,” said Joseph W. Beard, national office administrator of the National Association for Bilingual Education, an umbrella organization.

Representative Augustus F. Hawkins, a California Democrat who is chairman of the House Education and Labor Committee, said he expected the program, which expires in 1988, to be extended this year but did not think Congress would change it.

But Senator Claiborne Pell, a Rhode Island Democrat who is chairman of the Labor and Human Resources Committee’s Subcommittee on Education, Arts and the Humanities, said he believed that ”the act should be sufficiently flexible to allow for other methods of instruction where the need can be demonstrated.”

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