A nationwide investigation has uncovered how for-profit residential facilities treating troubled teenagers are successfully accessing taxpayer-funded special education dollars, despite mounting concerns about safety at these private institutions.
The Associated Press investigation reveals that these facilities, part of what’s known as the troubled teen industry, continue receiving this funding due to a fragmented special education bureaucracy with significant oversight gaps.
These centers employ several strategies to maximize profits, including establishing individual contracts with school districts and enrolling students from other states — tactics that weaken regulatory supervision. Industry experts note these facilities also exploit a broad disability classification and use a network of educational consultants to generate referrals.
Meg Appelgate, who leads Unsilenced, an organization supporting former residential facility attendees, highlighted the lack of standardized regulations governing how these centers gain approval to provide special education services and the absence of transparency when students report abuse.
“It’s a huge issue,” Appelgate said. “It’s simply got too many holes in it and we have to shut it down.”
The Individuals with Disabilities Education Act serves as the federal legislation enabling special education funding for residential placements. These services are outlined in each child’s Individualized Education Program plan, known as an IEP, supported by combined funding from local districts, states, and federal sources.
When the AP contacted education departments in all 50 states, officials indicated that individual school districts bear sole responsibility for ensuring proper use of special education funds. Most agencies reported they don’t monitor private residential placements, while states including Colorado and Maine informed the AP they don’t track students sent to out-of-state facilities.
“(C)hildren enter and exit these institutions frequently,” said Chloe Teboe, a spokesperson for the Maine Department of Education.
A 2022 study requested by California lawmakers discovered only half of all states maintain certification processes, with few requiring facility inspections. Most state regulations addressed educational matters while overlooking elements like building safety standards or employee background screening.
This oversight gap becomes problematic as many residential programs depend heavily on students from distant states rather than local enrollees.
Calo Programs, located in Lake Ozarks, Missouri, reports serving children from 30 states as one of the nation’s largest facilities of this type, conducting substantial IEP business with Illinois and California. In 2025, special education funding from these states covered expenses for at least 24 children attending Calo.
Meanwhile, the Missouri Department of Elementary and Secondary Education reported only two in-state students have been placed at Calo over the past ten years.
In a statement, Calo explained its specialized program attracts students nationwide because it effectively serves IEP students, and the company supports thorough external oversight built into district contracts.
“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.
Jennifer Rodriguez, who directs the San Francisco-based Youth Law Center, described IEP funding as a problematic loophole in California that puts hundreds of vulnerable children at risk.
Her advocacy organization spearheaded last year’s effort to prohibit adoption subsidies from funding out-of-state facilities. California had previously banned foster care money for similar placements, yet the California Department of Education reports nearly 300 California students have been out of state during the current academic 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 described communication as “broken” after child welfare systems stopped sending foster children out of state, prompting her to champion new legislation last year requiring education officials to conduct in-person student interviews and maintain quarterly phone conversations on unmonitored lines.
“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 frequently depends on the broad “emotional disturbance” disability classification.
Aaron Rachelle Campbell, a special education professor at Lincoln University of Missouri studying this trend, explained that residential centers are overusing this label, which is so expansive it lacks meaningful definition. The category can encompass anything from severe depression to classroom disruption, while the special education process doesn’t involve medical diagnosis determination.
“We don’t always see signs of it at the level that we would say is a (special education) diagnosis,” Campbell said.
Oregon state Sen. Sara Gelser Blouin worked to address this issue by establishing the country’s first registry for private educational consultants frequently hired to help parents secure IEP funding for placement.
Her 2021 legislation, which prohibited consultants from receiving payment from companies for referrals, faced strong industry opposition, including from Calo’s parent company, Embark Behavioral Health, which operates multiple facilities.
“Their argument was that without the education consultants, they would go out of business,” Gelser Blouin said.
Gelser Blouin also reported independently contacting the Embark admissions hotline that year to understand their position and was immediately directed to educational consultant contacts.
“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 disputed having any financial arrangements 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 working in the Chicago area, stated that she and other credible professionals associated with the Independent Educational Consultants Association would never accept company payments for referrals.
She noted the current increase in families seeking IEP funding for residential programs has occurred alongside significant cost 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.”
