San Francisco—Across the country, a growing number of private residences that market themselves as solutions for “troubled teens” have been discovered siphoning special‑education (IEP) money that was intended to benefit students with disabilities. An AP investigation found that these for‑profit centers use a combination of looser licensing rules, out‑of‑state operations and the broad “emotional disturbance” diagnosis to secure government funding.
Under the Individuals with Disabilities Education Act (IDEA), local school districts, state agencies and the federal government combine money to pay for services that are deemed necessary for a child’s IEP plan. But when AP asked all 50 state education departments for information on how place‑in care is monitored, most officials said the responsibility lies solely with the local districts, with little or no state‐level enforcement for residential placements. Even in states with a certification process, like Colorado or Maine, agencies admitted they don’t track students who leave the state for treatment.
A spill‑over effect is evident in California, where the 2022 California legislators’ study found that half the states lack a solid certification system and only a handful require on‑site visits. The result? Many residential programs rely on students from distant states, which decreases the chance that parents, educators or regulators can vet them.
“Children enter and exit these institutions frequently,” said Chloe Teboe, spokesperson for the Maine Department of Education. “There’s almost no oversight that matters.”
A sense of mystery surrounds the finances of the industry. The federal regulation has a catch‑all “emotional disturbance” disability category that can cover a wide spectrum of issues—from depression to a flare of anger. Special‑education scholars say the label is often overused, giving facilities means to enroll almost any child. A 2021 study by Aaron R. Campbell, a professor at Lincoln University of Missouri, suggested that the diagnostic criteria for emotional disturbance are vague enough that the label can cover everything from serious depression to occasional “mouthing off” in class.
The industry also uses a hidden consultant network. Oregon Senator Sara Gelser Blouin in 2021 passed the first law that prohibited educational consultants from earning money from companies for referrals. The move was met with fierce opposition from industry groups such as Embark Behavioral Health, the parent company of a number of facilities including Calo Programs in Lake Ozarks, Missouri.
“I won’t deny that it’s a big racket,” said Gelser Blouin. “They keep paying consultants to feed families the system.”
Calo Programs says it does not accept payment from consultants; instead it “focuses solely on supporting the families they refer to our care.” Speaking on the company’s website, a spokesperson says the center pulls students from “all over the country,” claiming that a “rigorous outside oversight” is built into its contracts.
Calo’s business model creates a real statistic. In 2025, the state of Illinois and California together paid at least 24 students to attend the Missouri‑based facility, while the same Missouri department reported only two in‑state students over the past decade. As the facility claims to treat severe disorders using a specialized program, it demonstrates a loophole that let state funds move far from the student’s home community.
The question becomes whether the system—born of a marriage between local districts and federal funding—is strong enough to guard against diversion. Some lawmakers say they’re in urgent need of new litigation that would force direct oversight of students receiving IEP money.
Education systems feel pressure to meet specialized needs, but we’re all seeing the same danger—no matter who’s funding it, said Jennifer Rodriguez, executive director of Youth Law Center, a nonprofit based in San Francisco. The state has banned foster‑care money from paying out‑of‑state placements, but the California Department of Education says nearly 300 California students are out of the state this semester.
Senator Shannon Grove—who championed a 2022 law requiring that IEP students must be interviewed in person and on a direct line to an education office—saw the system as broken.
We don’t even have a face‑to‑face interview with these kids who could be there for months, even years, she said. That’s simply unacceptable.
Meanwhile, employees of embedding organizations claim they do not accept any money from the private facilities. Imy Wax, an educational consultant based in Chicago and an associate of the Independent Educational Consultants Association, said she never receives referral fees.
“They do not receive any money from companies for referrals,” Wax said. “We uphold a professional ethic that keeps us honest.
This growing practice of diverting special‑education dollars to for‑profit treatment facilities has raised alarm bells across multiple states. Much of the industry’s success lies in a poorly enforced framework that, while meant to help students with unique needs, can be manipulated to preserve profit margins. Some experts see an urgent need for a statewide audit across all states to discover where and how money travels once a student’s IEP lists a crisis that could be answered with better local options.
The law provides many safeguards, but the regulatory gaps that allow private institutions to easily slip students from all over the country underscore a much larger problem: schools and funding agencies may not be adequately monitoring the nurseries of care when they hand over money. Until there’s a clearer mandate to audit and ensure safety, students may still be at risk despite the public funding intended to protect them.
Under the Individuals with Disabilities Education Act (IDEA), local school districts, state agencies and the federal government combine money to pay for services that are deemed necessary for a child’s IEP plan. But when AP asked all 50 state education departments for information on how place‑in care is monitored, most officials said the responsibility lies solely with the local districts, with little or no state‐level enforcement for residential placements. Even in states with a certification process, like Colorado or Maine, agencies admitted they don’t track students who leave the state for treatment.
A spill‑over effect is evident in California, where the 2022 California legislators’ study found that half the states lack a solid certification system and only a handful require on‑site visits. The result? Many residential programs rely on students from distant states, which decreases the chance that parents, educators or regulators can vet them.
“Children enter and exit these institutions frequently,” said Chloe Teboe, spokesperson for the Maine Department of Education. “There’s almost no oversight that matters.”
A sense of mystery surrounds the finances of the industry. The federal regulation has a catch‑all “emotional disturbance” disability category that can cover a wide spectrum of issues—from depression to a flare of anger. Special‑education scholars say the label is often overused, giving facilities means to enroll almost any child. A 2021 study by Aaron R. Campbell, a professor at Lincoln University of Missouri, suggested that the diagnostic criteria for emotional disturbance are vague enough that the label can cover everything from serious depression to occasional “mouthing off” in class.
The industry also uses a hidden consultant network. Oregon Senator Sara Gelser Blouin in 2021 passed the first law that prohibited educational consultants from earning money from companies for referrals. The move was met with fierce opposition from industry groups such as Embark Behavioral Health, the parent company of a number of facilities including Calo Programs in Lake Ozarks, Missouri.
“I won’t deny that it’s a big racket,” said Gelser Blouin. “They keep paying consultants to feed families the system.”
Calo Programs says it does not accept payment from consultants; instead it “focuses solely on supporting the families they refer to our care.” Speaking on the company’s website, a spokesperson says the center pulls students from “all over the country,” claiming that a “rigorous outside oversight” is built into its contracts.
Calo’s business model creates a real statistic. In 2025, the state of Illinois and California together paid at least 24 students to attend the Missouri‑based facility, while the same Missouri department reported only two in‑state students over the past decade. As the facility claims to treat severe disorders using a specialized program, it demonstrates a loophole that let state funds move far from the student’s home community.
The question becomes whether the system—born of a marriage between local districts and federal funding—is strong enough to guard against diversion. Some lawmakers say they’re in urgent need of new litigation that would force direct oversight of students receiving IEP money.
Education systems feel pressure to meet specialized needs, but we’re all seeing the same danger—no matter who’s funding it, said Jennifer Rodriguez, executive director of Youth Law Center, a nonprofit based in San Francisco. The state has banned foster‑care money from paying out‑of‑state placements, but the California Department of Education says nearly 300 California students are out of the state this semester.
Senator Shannon Grove—who championed a 2022 law requiring that IEP students must be interviewed in person and on a direct line to an education office—saw the system as broken.
We don’t even have a face‑to‑face interview with these kids who could be there for months, even years, she said. That’s simply unacceptable.
Meanwhile, employees of embedding organizations claim they do not accept any money from the private facilities. Imy Wax, an educational consultant based in Chicago and an associate of the Independent Educational Consultants Association, said she never receives referral fees.
“They do not receive any money from companies for referrals,” Wax said. “We uphold a professional ethic that keeps us honest.
This growing practice of diverting special‑education dollars to for‑profit treatment facilities has raised alarm bells across multiple states. Much of the industry’s success lies in a poorly enforced framework that, while meant to help students with unique needs, can be manipulated to preserve profit margins. Some experts see an urgent need for a statewide audit across all states to discover where and how money travels once a student’s IEP lists a crisis that could be answered with better local options.
The law provides many safeguards, but the regulatory gaps that allow private institutions to easily slip students from all over the country underscore a much larger problem: schools and funding agencies may not be adequately monitoring the nurseries of care when they hand over money. Until there’s a clearer mandate to audit and ensure safety, students may still be at risk despite the public funding intended to protect them.
