A special three-judge panel unanimously declared the budget-balancing Gramm-Rudman law unconstitutional yesterday, eliminating the first round of automatic budget cuts.

An appeal will be made later this month to the Supreme Court.

The Gramm-Rudman bill, passed in December 1985, could have forced Congress to implement budget cutting measures which would have struck 500,000 students from the Pell Grant system, which helps subsidize college educations, and disqualified 600,000 students from receiving federally guaranteed loans.

If the law was carried out, the student aid budget would be slashed 40 percent over the next five years. The first year of cuts would total $2 billion for education, while most other domestic programs would be held back by over 25 percent.

The mandatory across-the-board spending cuts which would be triggered automatically, if Congress failed to meet, specified deficit reduction targets were declared unconstitutional, because they took control of the budget away from Congress.

The first $11.7 billion set of cuts, ordered by President Reagan to take effect March 1, is "hereby declared without legal force and effect," the ruling read.

With or Without

Economists and legal experts predicted yesterday that the Supreme Court would sustain the panel's ruling. But they had mixed reactions to the court's decision.

"This will confuse things for a while, but they'll correct it even- tually, said Martin S. Feldstein, professor ofEconomics. He said Congress would manage to getGramm-Rudman-like cuts passed with or without thelaw.

"The decision shows great wisdom. Everybodywill breathe a sigh of relief," said Professor ofEconomics Stephen A. Marglin '59.

The budget also includes cutbacks in fundingfor non-military research for universities.Cutbacks in MediCare will lead to $1 billionreductions in funding for university teachinghospitals.

Harvard officials, however, said they werestill worried about the effects of the bill andcuts on the University.

John Shattuck, vice president for governmentand public affairs, said "just becauseGramm-Rudman has been declared unconstitutional,it doesn't mean that there won't be tremendouspressure to make budget cuts.

"The question remains whether Congress iswilling to raise revenue in other ways or cut thebudget unprotected by Gramm-Rudman."

But Shattuck said he remains optimistic. "Theodds are favorable that the Congress will decidenot to decimate all education programs, but itwill still cut them," he said.