Despite increasing scrutiny, for-profit residential facilities in the so-called troubled teen industry are tapping into taxpayer money designated for students with disabilities. These centers, which claim to treat severe mental and behavioral health issues, are adeptly navigating the fractured bureaucracy of the special education system, according to an Associated Press investigation.
Profiting from Loopholes
The playbook includes operating on stand-alone contracts with individual school districts and enrolling out-of-state students, which dilutes regulatory oversight. Experts say residential centers also capitalize on a catch-all disability category and rely on a shadow network of educational consultants for referrals.
Meg Appelgate, CEO of Unsilenced, a nonprofit supporting former attendees, highlighted the lack of standard rules. “It’s a huge issue,” she said. “It’s simply got too many holes in it, and we have to shut it down.”
Fractured Oversight
The Individuals with Disabilities Education Act allows special education money to fund residential placements through Individualized Education Program (IEP) plans. However, when the AP contacted all 50 state education departments, most said local school districts are solely responsible for ensuring proper use of funds. Many states, like Colorado and Maine, do not track out-of-state placements.
Chloe Teboe, a spokesperson for the Maine Department of Education, noted that children frequently enter and exit these institutions. A 2022 California legislator-commissioned study found only half of states have a certification process, and few require on-site visits.
Out-of-State Students
Calo Programs in Lake Ozarks, Missouri, treats children from 30 states and does significant IEP business with Illinois and California. In 2025, special education money from those states funded at least 24 children at Calo. In contrast, only two in-state students have been placed there in the past decade, according to the Missouri Department of Elementary and Secondary Education.
Calo stated that its specialized program attracts students nationwide and welcomes rigorous oversight built into 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,” the company said.
California’s Loophole
Jennifer Rodriguez, executive director of the Youth Law Center, called IEP money a “fraught loophole” that leaves vulnerable children at risk. California banned adoption subsidies from funding out-of-state facilities last year, but the state education department reports nearly 300 students placed out of state this school year.
State Sen. Shannon Grove said communication was “broken” after the child welfare system stopped sending foster kids out of state. She championed a law requiring education officials to interview students in person and hold quarterly calls on unmonitored phone lines.
Emotional Disturbance Label
Special education funding for residential placement often relies on the “emotional disturbance” category. Aaron Rachelle Campbell, a special education professor at Lincoln University of Missouri, said the label is overused and meaningless. “We don’t always see signs of it at the level that we would say is a (special education) diagnosis,” she said.
Consultant Racket
Oregon state Sen. Sara Gelser Blouin helped create the nation’s first registry for private educational consultants, banning them from receiving referral payments from companies. Her 2021 law faced fierce opposition from the industry, including Embark Behavioral Health, Calo’s parent company. “Their argument was that without the education consultants, they would go out of business,” Gelser Blouin said.
She independently contacted Embark’s admissions hotline and was immediately referred to a list of 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,” she said. “It’s this whole big racket.”
Calo denied any financial relationship with consultants, stating that relationships with referral partners focus solely on supporting families.
Imy Wax, an educational consultant in the Chicago area, said reputable professionals never accept referral fees. She noted that rising demand for IEP-funded placements has driven up prices. “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.”
