Four basic propositions lead to significant questions concerning government-university relations: (1) The nation needs an increasing supply of college graduates in all fields. So far, the financial implications of such a commitment have not been grasped. (2) Although the existing structure of higher education represents a sizeable investment, parts of the system are under severe financial strain. (3) Recent Congresses and Administrations have indicated that the federal government has a major role to play in financing higher education. (4) In spite or because of this influsion of federal funds, many institutions have a more precarious fiscal situation now than a decade ago. This is partly because demands have outstripped available resources and partly because federal support has been almost entirely categorical and requires the commitment of additional institutional funds. Ways must be found to provide general institutional support as a supplement to categorical aid. Major adjustments in funding formulas and in concepts of the responsibility of higher education must be made. Many areas should b e explored--academic and housing facilities, graduate education, research, student aid, development of major university centers, undergraduate institutions, institutional cooperation, division of labor, revision of tax laws. It seems inevitable that the nations must consider federal support for higher education AS A SYSTEM. Possible approaches to achieving this are suggested. An annotated bibliography is included. (JS)