The various sources of federal funds and the subsequent problems in conforming to federal rules and regulations are considered. The actual U.S. funds for higher education for fiscal year 1978 and current federal programs dealing with financial aid to students are listed. One of the major problems in the administration of federal student aid dollars is shown to be the existence of inequities in the amount of money going to college campuses and to individual students, and inequities between the distribution of funds to two-year institutions as opposed to four-year institutions. Recently proposed federal regulations intended to eliminate fraud and abuse in student aid programs have been perceived by some college officials as unnecessary government intrusion into their affairs and an addition to the already overburdening paperwork. It is noted that the federal government as a main support for research to the academic professions in America sets the trends in research at institutions of higher education and has recently gotten into the business of regulating the research that it finances. Two of the agencies the federal government has established that significantly influence the workings of higher education are the National Endowment for the Humanities and the National Science Foundation. Problems in cutting federal red tape and proposed changes for improving the federal/higher education relationship are addressed. (SW)