Proposed levels of federal aid to college students and the national economic context are considered. Compared to fiscal year 1985 and 1986 budgets, the Reagan administration has requested $2.3 billion less in various financial aid programs. It has proposed legislation limiting federal grants, direct loans, or work study jobs to students from families with adjusted gross incomes of $25,000 or less, while also placing a $4,000 cap on the total aid given to low-income students. Students from families with adjusted gross incomes of over $32,500 would be ineligible for subsidized loans. A major issue in the debate over financial aid is the definition of financially independent students. The debate over the 1986 financial aid budget presents important challenges to higher education, since the federal deficit that will be an increasingly critical issue in the future. It will also be necessary to determine how to reduce the cost of the financial aid program without demaging the system or its goals. Another challenge facing higher education is to disprove the myth that most students receiving financial aid do not need it and that they are exploiting the system. Positions in the debate over financial aid held by private individuals as well as government officials and U.S. congressional members are included. (SW)