In this second book of the Brookings Institution series of Studies in Higher Education Policy, the complex relationship between the federal government and the nation's higher education system is examined. After a survey of the history and background of Washington's involvement, an appraisal is made of the present condition of postsecondary education with focus on what the government can and cannot do to alleviate problems that lie ahead. Federal assistance programs and government regulation are scrutinized, suggestions are made for reform, and several schemes for government reorganization are analyzed, including the controversial plan for a national Department of Education. Overhauling federal policy, programs, and structure is cautioned against, since too much prescription is thought to be worse than too little, and Washington's piecemeal approach to higher education has worked relatively well to date. Future federal policy, it is suggested, should be directed toward increasing diversity in and access to higher education. (Author/MSE)