This report overviews policy issues and research needs related to rural education in the South, focusing on educational systems in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia. It is generally accepted that the South compare unfavorably with the rest of the nation with regard to education and workforce quality. Thus, educational improvement is seen as crucial to the continued development of the region. A review of educational research literature and of state-level education data for southern states examines student performance (the role of schools, families, and communities), educational finance, and education and economic development. The report concludes that the education process is strongly influenced by factors beyond the control of schools. From the perspective of research, more definitive answers are needed as to the exact nature of school, family, and community relationships in order to design appropriate educational improvement policies. With regard to educational finance, evidence suggests that little improvement will be achieved by marginal changes in school funding, and that existing variations between and within states may represent more than marginal differences. Finally, when considering education as a rural development strategy, it is important to note that issues such as school and student performance, family and community problems, and economic development are interrelated. Research and policy debates must recognize and focus on the nature of these interactions. Data tables include information on number of school districts, enrollment, school district size, revenues for public schools, current expenditures per student and as a percentage of personal income, average salaries for instructional staff and per capita income by state, and expenditures per pupil by state. Contains 76 references. (LP)