Increasing public dissatisfaction with the cost and quality of higher education is creating pressure for fundamental change. Higher education is not as certain to produce a higher standard of living as it used to be, and costs are rising faster than the rate of inflation. Declining state contributions to higher education have shifted the financial burden of running institutions of higher education to students. Many point to higher expenditures on nonacademic student amenities, bloated administrations, and senior faculty who teach few courses and produce little meaningful research. The citizens call for systemic organizational change leveraged by state policymakers. Since increased state funding is unlikely, the challenge for policymakers is how to encourage and reward such fundamental change in the long-term interests of citizens. Alternatives include: cutting funding to encourage containing costs; tying performance standards to funding; consolidating public universities and community colleges; implementing a Total Quality Management type of approach that offers the ethic of continuous improvement and reorients the institutions toward their "customers" (students), while tapping the potential of faculty and staff to shape a more responsive, efficient system of management and instruction; and "learning organizations" in the private sector that offer a new focus for many institutions of higher education. Engagement in organizational change could be a boon for higher education, creating whole new markets and enlivening the education process. Outcomes will ultimately depend on the energy and commitment that institutions bring to the challenge. (Contains 43 footnotes.) (TD)