Student aid policy of Chinese higher education was made in the form of free higher education before 1989. It changed into the form of direct assisting and rewarding students afterwards with the cost sharing policy into operation in China. This paper analyses four main questions of Chinese student aid policy. Firstly, it explores the background in which the policy is formulated and identifies the policy development stages. Secondly, human capital theory and modernization theory are applied to rationale the policy and specific goals of the policy are identified. Thirdly, some challenges confronting the policy are analyzed. Finally the impacts of the policies are explored.Domestic-study student aid and study-abroad student aid are two types of student aids of Chinese higher education. Assisting poverty students to improve equality and training human capital to increase efficiency are two rationales for Chinese student aid policy. Student aid policies have made great impacts on many aspects of China as expected. The equality of Chinese higher education is improved. The quality of higher education is enhanced through training excellence students and training more excellent teachers. Furthermore, the science and technology creativity of China is enhanced accordingly with the development of Chinese higher education. At the same time the balance between rural and urban and balance between western and eastern areas are improved.At the same time, there are still some challenges for this policy. Those challenges are funding sources constraints, coordinating different stakeholders, how to cover under represented students, and how to improve brain-brain.