This report, the first in a series on student financial aid, develops a public policy justification for needs-tested higher educational subsidies targeted specifically to students, and offers evidence to support the argument that financial aid is a worthwhile use of public monies. Traditionally, public subsidies for students have been directed to institutions; in the mid-1960s, however, federal and state governments began to subsidize higher education of students directly via needs-tested grants and other forms of aid. Currently more than $20 billion is spend on student aid. Five sections look at: student demand for higher education; differences in abilities to pay college costs; the effect of price on student enrollment decisions (discussing student enrollment responses to price and to financial aid); the public policy commitment to equalize higher educational opportunity (discussing federal and state commitments); and society's interest in improving educational opportunity (discussing labor force renewal and preservation of social peace through hope). It is concluded that higher education is essential to current and future prosperity of both individuals and the larger society. Signals from the labor market indicate a current oversupply of workers with less than a college education and an undersupply of workers with college degrees. Today, student financial aid addresses simultaneously two social issues: (1) the fulfilling of the aspirations of citizens wishing to climb the ladder of opportunity and (2) the enormous human capitalization requirements of the evolving world economy and the role of the United States in that system. Contains 16 references. (SM)