The paper focuses on policy issues for handicapped students whose parents (primarily military) are employed by the federal government overseas. Chapter I describes three types of federally funded programs: overseas dependents schools, tuition free schooling (where low student populations do not justify the operation of federally funded schools), and service operated "Section 6" schools. Chapter II examines implications of funding, state policies and plans, compliance, and administration aspects of P.L. 94-142, the Education for All Handicapped Children Act. Chapter III compares the current status of special education services in those settings with the requirements of P.L. 94-142 in the following areas: identification, location, and evaluation of handicapped children; assessment; individualized education programs; least restrictive environment; related services, procedural safeguards, personnel development, architectural barriers, advisory panels, and "Section 6" schools. Options are considered in the final chapter for the following policy areas: identification and location of handicapped children, least restrictive environment, related services, and procedural safeguards. (CL)