Federal policies toward higher education and their interaction (or lack of interaction) with state policies are described. Characterized are the differing historical roles played by the state and federal governments in shaping American higher education. Administrative arrangements, types, and dimensions of federal funding for students and institutions are outlined, along with the trends and prospects for such support during the 1980s. The discussion on state and federal roles examines federal programs in terms of bypassing the states, the types and dimensions of federal support, federal regulation, and some assumptions about the 1980s. The section on student aid focuses on: the dilemmas caused by the expansion of federal programs, state responses, expansion of state aid, the creation of no-need awards, the shift in focus to the private sector, cutbacks, changing features of the federal/state partnership, enrollment shifts, and the reauthorization of the Higher Education Act. Federal funds and state prerogatives are discussed with focus on the federal budgetary outlook, fiscal control and the issue of reappropriation, and the status of education in the federal establishment. Among the conclusions are: the principal object of federal funding will remain the individual student; federal dollars for the most part will not wind their way through the states; and key decisions affecting colleges and universities will be made by or at least within the states, not by the federal government. (LC)