Despite scrutiny, special education money flows to for-profit residential treatment centers

SAN FRANCISCO (AP) — Across the country, many for-profit residential facilities in the so-called troubled teen industry that claim to treat severe mental and behavioral health issues in children and teens are deftly tapping into taxpayer money meant for students with disabilities.

Even in the face of increasing scrutiny over the safety of such private institutions, this money continues to flow given the fractured bureaucracy of the special education system, an Associated Press investigation finds.

The playbook to profits includes operating on stand-alone contracts with individual school districts and drawing out-of-state kids — both of which effectively dilute any regulatory oversight. Residential centers are also capitalizing on a catch-all disability category, experts said, and relying on a shadow network of educational consultants who help get them business.

Meg Appelgate, CEO of Unsilenced, a nonprofit that supports former residential attendees, said the problem is that there are so few standard rules attached, from how centers get approved to provide special education services, to the lack of transparency when a student from any one district alleges abuse.

“It’s a huge issue,” Appelgate said. “It’s simply got too many holes in it and we have to shut it down.”

A fraught loophole

The Individuals with Disabilities Education Act is the federal law that allows special education money to pay for residential placements. Services are determined in the child’s Individualized Education Program plan, commonly known as an IEP, which is funded by a mix of local school district, state and federal dollars.

When AP sought information from all 50 state education departments, officials said it is the sole responsibility of each local school district to ensure special education money is used properly. Most agencies said they don’t keep any tabs on private residential placements, while others like Colorado and Maine told the AP they do not track students if they are sent out of state.

“(C)hildren enter and exit these institutions frequently,” said Chloe Teboe, a spokesperson for the Maine Department of Education.

A study commissioned by California legislators in 2022 found just half of all states have a certification process and few require on-site visits. Most state policies focused on educational concerns and didn’t include things like building codes or staff background checks.

That creates a gap in oversight when many residential programs lean heavily on out-of-state students rather than those close to home.

Calo Programs in Lake Ozarks, Missouri, which said it has treated children from 30 states as one of the largest centers of its kind, does significant IEP business with both Illinois and California. In 2025, special education money from those two states paid for at least 24 kids to go to Calo.

In contrast, the Missouri Department of Elementary and Secondary Education said only two in-state students have been placed at Calo in the past decade.

Calo said in a statement that its specialized program draws kids from all over the country because its program works for IEP students, and that the company welcomes rigorous outside oversight that is built into its contracts with school districts.

“Calo works with a high-volume of school districts across the country, and those districts can attest to the quality of care, instruction, and academic support we provide to all students,” Calo said in a statement.

IEP money has become a fraught loophole in California, ultimately leaving hundreds of vulnerable kids at risk, said Jennifer Rodriguez, executive director of the San Francisco-based Youth Law Center.

The advocacy group led the push last year to ban adoption subsidies from paying out-of-state facilities. The state had already prohibited foster care money from authorizing those same kinds of placements. Yet the California Department of Education said there are nearly 300 California students who have been out of state during the current school year.

“Education systems are often under a lot of pressure to meet specialized needs,” Rodriguez said. “They have completely different legal mandates, but you know the risk is the same ... they’re exposing youth to the same harm — no matter who is funding them.”

California state Sen. Shannon Grove said communication was “broken” after the child welfare system stopped sending foster kids out of state, so she championed a new law last year requiring education officials to interview students in person and hold quarterly calls with them on an unmonitored phone line.

“We don’t even have a face-to-face interview with these kids who could be there for months, even years. That’s completely unacceptable,” Grove said.

Special education funding for residential placement often relies on the catch-all “emotional disturbance” disability category.

Aaron Rachelle Campbell, a special education professor at Lincoln University of Missouri who is studying this trend, said residential centers are overusing the label, which is so broad that it’s actually meaningless. It can cover everything from serious depression to mouthing off in class. The special education process has no role in determining any possible medical diagnoses.

“We don’t always see signs of it at the level that we would say is a (special education) diagnosis,” Campbell said.

'It’s this whole big racket'

In her efforts to rein in this phenomenon, Oregon state Sen. Sara Gelser Blouin helped create the nation’s first registry for private educational consultants who are often hired to help parents get IEP money for placement.

Her 2021 law, which banned them from being paid by the companies for referrals, was fiercely opposed by the industry, she said, including Calo’s parent company, Embark Behavioral Health, which operates numerous facilities.

“Their argument was that without the education consultants, they would go out of business,” Gelser Blouin said.

Gelser Blouin also said she independently contacted the Embark admissions hotline to inquire about their services that year to try to understand their position and found she was immediately referred to a list of educational consultants.

“So you go to the consultant and $10,000 later, they make a recommendation to you, which likely will include one of the facilities that is with Embark or many of those facilities,” Gelser Blouin said. “It’s this whole big racket.”

Calo denied having any financial relationship with educational consultants.

“In all cases, our relationship with referral partners is focused solely on supporting the families they refer to our care,” the company said in a statement.

Imy Wax, an educational consultant based in the Chicago area, said she and other reputable professionals affiliated with the Independent Educational Consultants Association would never accept money from companies for referrals.

She said the current rise in the number of families seeking IEP money for residential programs has coincided with significant price increases for such placements.

“What I’m seeing is that parents are financially frightened,” Wax said. “I see much more leaning into the school system than I did in the past.”