This review and analysis of a report by the National Institute of Education on compensatory education addresses the question of allocation of funds under Title I of the Elementary and Secondary Education Act. It describes the Title I formula and its effectiveness in allocating federal education funds, and analyzes some alternatives to the current formula. The discussion is limited to basic grants to school districts and does not include Title I funding for state agency programs, state administration, Puerto Rican schools, Bureau of Indian Affairs, and outlying territories, or Part B special incentive grants. Allocation formulas for state compensatory education programs are also excluded from this discussion. The report shows that federal financial assistance has been allocated on the basis of the number of children from low income families, and to that extent, the ESEA Title I allocation process is operating properly. The findings are based on data from the census of the population, on Title I program data, and on various surveys of school districts. (Author/AM)