State and federal policy issues regarding graduation requirements for handicapped students are explored. After a historical review of such issues as school attendance laws and the competency based testing movement, the effect of state and federal legislation is discussed. State action regarding minimum competency testing is charted and four policy option areas (the single standard diploma, the differentiated standards diploma, standards and curricular adaptation, and alternative education programs) are presented. Chapter II examines the impact of judicial decisions on educational policies. The impact of educational research on policies is the focus of the third chapter. Positive and negative aspects of policy options are addressed. (CL)