Proposed changes in student financial aid for fiscal year (FY) 1986 and their likely effects on higher education are discussed. The Reagan Administration's FY 1986 budget recommends a 25% cut for higher education, or $2.3 billion below the adjusted FY 1985 level of $8.8 billion. All but $100 million of the cuts would come from student aid, and virtually all 5.3 million current recipients would be affected: students without any family resources, as well as students from many middle-income families. About 808,000 middle-income students would be ineligible for Pell Grants in academic year 1986-1987. Seven other aid programs, providing another 2 million awards for undergraduate and graduate students, would be abolished. Almost one million current borrowers would be removed from the Guaranteed Student Loan program by capping eligibility at adjusted gross family incomes of $32,500. A $4,000 cap would be imposed on the total aid any student could receive from all federal programs. All Higher Education Act categorical programs would be terminated except for Title III grants for developing institutions. Additional changes and specific funding levels and modifications for each federal student aid program are covered, along with the effect of the plan on private institutions and community and technical colleges. (SW)