A study by the American Council on Education examined the conditions and needs of the private sector of higher education. The policy options outlined here are in four categories. The first category, improving federal-state coordination of policies affecting private institutions, proposes two ideas: a request by the President that each state develop an explicit policy for support and adequate representation of private institutions in its planning; and additional federal incentives for state support. The second category, assuring students reasonable choice, proposes modifying federal grant programs in student aid to reflect differing student needs and differing institution costs (with specific suggestions for each program); and providing more equitable distribution of student aid funds. The third category, sustaining the viability of postsecondary institutions, makes six suggestions: (1) provide realistic administrative cost allowances for all student aid programs; (2) encourage the self-development of small colleges; (3) provide loans and cost reimbursement to help institutions meet the costs of implementing federally-mandated social programs; (4) provide federal matching grants to states that provide institutional support funds to private colleges; (5) review administrative policy on cost-of-education payments; and (6) create measures for relieving acute financial distress. Finally, incentives are proposed for private support of postsecondary institutions. (MSE)