Some of the issues concerning the evolving relationship between state and federal agencies in the field of student financial aid are examined, with attention to the State Student Incentive Grant Program (SSIG). After tracing the history of the SSIG, the following issues are considered: SSIG portability; state control of fraud, abuse, and error; financial aid to nonprofit institutions, allocation formula; state capacity for student assistance; computation of state subsidy; and perspectives on student aid by state planners. It is suggested that the SSIG program was initiated to attract states into providing student financial aid at the state level, and this effort has been successful. Four alternative models that could be legislated to encompass future roles of the program are described. It is claimed that the federal policy-makers would like to see grants available to students attending school out of state, but states are concerned about sending students out of state when public colleges and universities are increasingly underutilized. There is increasing concern that funds are being awarded improperly and that institutions have mishandled funds in some instances. The federal government wants to include all nonprofit institutions but the states want to be able to be more selective. An index of state effort in support of postsecondary education is described, and the flow of dollars within a funding system is examined. The complexity of state-federal relations in higher education is suggested. (SW)