Public policy issues relating to federal assistance to colleges struggling to survive in the 1980s are addressed. Special challenges to postsecondary education result from declining enrollments, inflationary cost spirals, and lack of public confidence in education. Questions are raised in regard to the following five public policy alternatives, based on research and background papers that were part of the legislative process in the reauthorization of the Higher Education Act during 1980: (1) manipulation of student financial assistance formulas to favor certain segments of postsecondary education; (2) display of models of management practice and academic excellence; (3) provision of assessment tools and collection of data nationally on the financial health of institutions; (4) direct federal assistance such as that provided under Title III of the Higher Education Act; and (5) assistance in institutional management. Currently 94% of federal assistance to higher education is in the form of student financial aid. An important issue is aid provided to students attending private colleges. In regard to quality in postsecondary education, it is suggested that federal funding of research and innovation is likely to take place in strong institutions, since the weaker institutions have the least capacity for innovation and change. One effort that is underway is a study by the National Center for Education Statistics to analyze data from the Higher Education General Information Survey to see if it can be used to determine financial health, or to suggest data elements to be added or format changes to be made. Attention is directed to the Institutional Aid Program (formerly Strengthening Developing Institutions Program), the only program of direct financial assistance. (SW)