The role of the U.S. government in higher education finance and the ability and willingness of the states to support higher education at past levels are discussed. In the United States, financing is decentralized and pluralistic: federal, state, and local governments--as well as students, alumni, and private enterprise--all contribute. The states, which have the basic responsibility for education, have organized their institutions and finance systems differently. In terms of each state's ability to support higher education, the support for all public services has been eroded by the tax revolt of the late 1970s and by inflation. In addition to enrollment declines, there are other reasons why higher education may face reduced state revenues, including the belief of some legislators that many students can afford to pay more for their education and the fact that institutional budgets are not specified by statute. Four phases of federal activity since World War II illustrate how incentives have changed for institutions: (1) benefits for GI's, 1946-1957; (2) the reaction to Sputnik, 1958-1966; (3) access and civil rights, 1967-1980; and (4) and the new federalism under President Reagan, 1981-. The size of federal aid influences the state's design of its finance system. (SW)