Special Education Explainer

How Special Education Funding Actually Works

By Mark Lieberman — April 27, 2023 6 min read
Illustration of a desk with a calculator and budget sheet.
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Special education is among the most complicated and misunderstood facets of America’s sprawling K-12 school landscape.

And it’s only becoming more so.

The number of students qualifying for special education services is rising, even as persistent shortages of qualified staff members and dramatically inflated costs continue to hamper school districts’ efforts to provide those services for more than 7 million students.

Meanhile, there are no data illustrating the total amount of money America spends each year to provide these services, depriving policymakers of a complete picture of one of school districts’ largest line items. The last major study aiming to provide that data was published two decades ago. Efforts are underway in states like Ohio and Arizona to fill gaps in understanding, but the process can take years.

In the meantime, here’s an overview of how special education works in the U.S..

Are schools required under federal law to educate students with disabilities?

Yes. The official term for what students with disabilities are entitled to receive is a “free, appropriate public education,” or FAPE. That includes adhering to every detail of a student’s individualized education plan, or IEP—even when it means hiring staff, building a specialized classroom setting, or sending a student to an external provider.

The federal government pays a portion of those costs by sending annual grants to states, which in turn send them to districts. States and districts are then required to make up the remaining costs with their own funds.

Is the federal government required to contribute 40 percent of the cost of educating students with disabilities?

Not exactly.

The federal government first mandated special education services in K-12 schools in 1975, with the Education For All Handicapped Children Act.

Lawmakers at the time promised that federal funding for special education would cover a portion of the excess costs schools incurred to provide additional specialized services to students with disabilities. That’s because while most students with disabilities spend a big chunk of their school time in general education classrooms, all receive varying levels of additional services as well.

Lawmakers laid out a schedule of gradually growing annual investments from the federal government: from 5 percent of the nation’s average per-pupil expenditure (or APPE) for public schools in 1978, to 40 percent of APPE in 1982.

President Gerald Ford, while signing the legislation, said he believed the federal government would struggle to meet that investment target while maintaining a balanced budget.

Indeed, the federal government never followed through on that schedule (and it’s rarely achieved a balanced budget). Lawmakers later softened that language in the law, authorizing a “maximum level of funding” for special education services without requiring it.

A 2004 reauthorization of the law, since renamed the Individuals With Disabilities Education Act, included a schedule of federal funding that authorized an annual investment of $26 billion by 2012.

More than a decade after, the federal government’s annual IDEA funding is just barely half that.

Advocates have since pushed the federal government to live up to its original promise. Todd Swanson, financial controller of the Southwest Metro school district in Minnesota who wrote a master’s thesis on special education in the 1990s, offers a potent analogy for the current state of affairs:

“It’s like saying, ‘I’m going to give you $10 of this $100 restaurant bill, but I’m going to tell everybody what they can eat,’” Swanson said. “I might get the best meal and the rest of you get nothing.”

How does the federal government calculate 40 percent of the cost of special education?

Until 1999, the formula for a district-level IDEA grant was fairly simple: Take the total number of students with disabilities in the state, and multiply it by 40 percent of the average per-pupil expenditure across all K-12 public schools in America.

But after 20 years, the number of students receiving special education services was growing at a rate that concerned lawmakers. They worried that the existing formula was creating incentives for schools to designate students as needing special education services.

They altered the formula accordingly. States are now guaranteed to annually receive the amount of IDEA funding they got in 1999. If the product of the original formula (40 percent of APPE times the number of students with disabilities in the state) exceeds the 1999 sum, the additional funds are adjusted by two factors:

  • The state’s total number of K-12 students.
  • The state’s total number of K-12 students living in poverty.

See Also

A student visits a sensory room at Williams Elementary School, on Nov. 3, 2021, in Topeka, Kan.
A student visits a sensory room at Williams Elementary School in Topeka, Kan.
Charlie Riedel/AP

Researchers have recently sounded the alarm that this current formula dramatically shortchanges states with the largest overall populations of K-12 students, states with the largest shares of students in poverty, and states with the largest shares of students with disabilities. In a paper last year, these researchers argued for revamping IDEA rather than simply adding more funding.

Why did Congress choose 40 percent of APPE as the ceiling for federal special education funding?

At the time the original law was passed, lawmakers assumed that educating students with disabilities would work out to, on average, the cost of educating a traditional student, plus another 50 percent of that cost. They wanted the federal government to kick in some of that excess cost, as an incentive for states to comply with the federal mandate to provide these services, according to a 2018 history from the National Council on Disability, an independent government agency.

In one sense, the plan worked: No state has ever rejected IDEA funds from the federal government in exchange for freedom from the regulations around educating students with disabilities.

But more recent evidence suggests that the percentage drastically underestimates the total cost of services. A 2019 report from the California legislative analyst’s office, for instance, found that educating the average student with disabilities costs $27,000—nearly triple the cost of educating an average student without disabilities in the state, and double the current national average per-pupil expenditure, according to 2022 Census data.

Special education needs can also fluctuate dramatically from year to year. Carla Jentz, executive director of the Massachusetts Administrators for Special Education, said several districts in the state have reported significant increases in the number of students being referred for special education services or deemed eligible for IEPs.

Diagnostic tools are becoming more sophisticated and the pandemic exacerbated challenges for some students with disabilities. Many districts lack the personnel to handle these increasing caseloads, Jentz said.

“The mandated services will always have to be provided,” Jentz said. “If we’re gonna have to take from Peter to pay Paul, what happens in districts?”

Are districts required to spend more on special education than they did during the previous year?

Yes. With only a handful of exceptions, IDEA requires states to verify that districts either spend at least the same amount of local funds, or the same amount of state and local funds, on special education from one year to the next. That provision of IDEA is called “maintenance of effort.”

To IDEA critics like Swanson, the combination of this provision and the lackluster federal funding is frustrating.

“The guy that only gives $10 for the $100 meal now says, ‘Oh, by the way, next year you’ve gotta pay 92, and the year after that you’ve gotta pay 93,’” Swanson said.

See Also

Special education teacher Savannah Tucker works with Bode Jasper at the Early Childhood Education Center in Tupelo, Miss., on May 14, 2019. As the special education population has grown, so has mainstreaming - bringing these students into regular classrooms for at least part of their school days.
Special education teacher Savannah Tucker works with Bode Jasper at the Early Childhood Education Center in Tupelo, Miss., on May 14, 2019. Special education costs are rising, particularly as student needs have grown more complex since the start of the COVID-19 pandemic.
Thomas Wells/The Northeast Mississippi Daily Journal via AP


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