Federal regulation of church-related colleges and universities was studied. Usable responses were received from 210 of 800 church-related institutions concerning the role of religion in everyday life of the institutions and the particular problems created for them by federal regulation. A legal analysis is presented of the major problems that federal laws and regulations raise for the schools, based on relevant case law. Attention is also directed to the issues of: religious preference in employment policies, religious preference in student admissions, restriction on the uses of publicly funded facilities for religious purposes, protection of civil rights of handicapped persons, tax problems, labor law problems, sex segregation of students in housing, and other laws and regulations barring discrimination on the grounds of sex. The legal analysis is complemented by an examination of policy alterations: recommendations are offered for changes in laws, regulations, and enforcement procedures that would minimize the problems revealed by the survey and the legal literature. Noteworthy issues include: while 80 percent of the respondents considered religious affiliation and practice as important criteria in hiring faculty in some departments, only about 10 percent make religious affiliation a decisive criterion in hiring of all faculty members; and typically the institutions draw a little more than half their students from among members of their sponsoring church, but few expressed an absolute religious preference in choosing. Examples are cited of the rigidity of federal regulations and it is suggested that there is a need for institutional autonomy. (SW)