Historical developments and current trends affecting American higher education are discussed, along with government and college reactions to problems. A review of the literature covers: retrenchment, the federal role in the past, the role of the states, the private sector, population declines, inflation and unemployment, a loss of confidence in higher education, competition for government funds, and government regulation and deregulation. Several states have instituted new ways to finance public higher education, including institutional funding formulas. The federal government has sought to reduce student grants and loans because of the federal budget deficit. Elements of the Reagan Administration's educational policy are outlined. Additional topics include: federal and state actions that affect private colleges, the quality and nature of collegiate managers, possible responses by colleges to declining enrollments, maintaining educational quality, and collegiate responses to financial constraints. (SW)