IEPs are required by federal law, while most costs are paid by states and districts, with federal IDEA dollars covering only a portion.
“Federal law” and “federal funding” sound like the same thing. In special education, they’re not. An Individualized Education Program (IEP) is a legal plan that lists the services a student must receive. Paying for those services is a separate job handled through school budgets.
This article explains where the dollars usually come from, what federal funds can and can’t cover, and what to say in a meeting when someone tries to turn your child’s services into a budget argument.
Are IEPs Federally Funded? What federal dollars really do
No single federal check pays for a student’s IEP. Federal money mainly arrives as formula grants under the Individuals with Disabilities Education Act (IDEA). States receive those grants and pass most funds down to districts. Districts still carry the day-to-day duty to deliver services on the IEP.
For a clear overview of how IDEA Part B grants work, see the Congressional Research Service summary: The Individuals with Disabilities Education Act (IDEA), Part B.
Federal law sets the duty
IDEA ties federal grant money to student rights. States that take IDEA money must provide a free appropriate public education (FAPE) to eligible students, along with procedural safeguards. That’s why a district can’t treat an IEP like a “nice to have” service list.
State and local budgets pay most bills
Special education is labor-heavy. Teachers, paraprofessionals, therapists, evaluation staff, and specialized transportation add up quickly. Districts typically pay most costs with state education funds and local revenue. Federal IDEA grants help, yet they rarely cover the full price of staffing and service delivery.
How IEP services get paid for inside a district
Most districts don’t run budgets as student-specific accounts. They fund positions and programs, then schedule services student by student. That’s why you may never hear a dollar figure tied to your child’s plan.
- The district funds staff and contracts: special education teachers, related service providers, evaluation teams, and aides.
- The IEP team decides what the student needs: goals, services, minutes, accommodations, and placement in the least restrictive setting.
- The district assigns people and time to deliver services and records what was provided.
So when a district says, “We don’t have IDEA money for that,” it may mean “We planned our budget differently.” It does not automatically mean the service can’t be provided.
Where the money comes from for IEP services
Funding is layered. Districts blend several sources so they can pay staff year-round and still cover higher-cost needs.
Local funds
Local revenue often pays the baseline: salaries, buildings, and transportation. In many districts, local funds cover a large share of special education paychecks because those positions exist every year.
State education funds
States use different formulas to distribute special education funds. Some methods tie dollars to enrollment. Others use weights, reimbursements, or capped grants. The formula affects staffing levels and how quickly districts can add positions when needs rise.
Federal IDEA funds
IDEA Part B is the major federal stream tied to IEP services for students ages 3–21. The Office of Special Education Programs summarizes the structure of these grants in its overview of state formula grants under IDEA.
Medicaid reimbursements for eligible health services
Some related services on IEPs overlap with covered health services. When a student is enrolled in Medicaid and the service is covered under the state plan, a district may be able to bill Medicaid for the service delivered at school. This does not change what the student is entitled to receive. It changes how the district can recover part of the cost.
If you want to see what CMS points districts and states to for billing options and documentation tools, start with CMS school-based services resources.
Other sources that sometimes overlap
Districts may also use state health programs, mental health grants, or short-term education grants for training or materials. These sources can pay for pieces that match their rules. They don’t erase IDEA duties.
Funding sources and what they can cover
This table shows common streams connected to special education and IEP services. Names vary by state, yet the patterns are consistent.
| Funding stream | What it often pays for | What can limit it |
|---|---|---|
| IDEA Part B (Section 611) | Special education instruction, related services, evaluations, program costs for eligible students | Must follow IDEA rules; not meant to replace local/state baseline spending |
| IDEA Part B (Section 619) | Preschool special education services (ages 3–5) | Often smaller than total preschool special education costs |
| State special education funds | Staffing, contracted services, specialized materials | Depends on the state formula and reporting rules |
| Local district funds | Salaries, paraprofessionals, transportation, daily operations | Competes with other district priorities |
| Medicaid school-based claims | Covered health services delivered at school for Medicaid-enrolled students | Eligibility, covered service rules, and required documentation |
| State health or mental health programs | Counseling and school-based clinician time in eligible programs | Program eligibility and capped funding |
| Short-term grants | Training, materials, pilot programs, short-term staffing | Time-limited; not reliable for ongoing IEP services |
| Private insurance (limited use) | Some therapy costs when families opt in and rules allow | Consent rules; schools must still provide FAPE regardless |
Rules that come with federal IDEA dollars
IDEA funds come with guardrails designed to keep a stable state and local spending base. Districts may talk about these rules when they explain why a certain budget line can’t be used for a certain cost.
Maintenance of effort
States and districts generally must maintain certain levels of special education spending over time to keep receiving IDEA funds. States monitor this through reporting and compliance checks.
Excess cost and local spending first
IDEA also uses “excess cost” rules. In everyday terms, a district must pay a minimum amount from non-federal sources before charging certain costs to IDEA. That is one reason salaries are often paid from local and state funds, with IDEA dollars used for higher-cost pieces like evaluations, specialized materials, assistive technology, or contracted provider time.
Paperwork can shape decisions
Federal funds bring documentation requirements. Districts must show that spending fits the rules, and states review district practices. This can make districts cautious. A cautious budget choice is not the same thing as a legal limit on what your child can receive.
Common misunderstandings that stall IEP meetings
“If IDEA money runs out, services stop”
Services on an IEP are not optional line items. If the IEP team agrees the service is needed for FAPE and it is written into the plan, the district must deliver it. Districts may shift costs between funding streams behind the scenes.
“The district can only offer what a federal grant allows”
IDEA limits how federal dollars are used. It does not limit what services can be written into an IEP when those services are needed. Many IEP services are paid from state and local funds.
Want the big-picture funding history that people cite in “full funding” debates? The National Council on Disability report Broken Promises: The Underfunding of IDEA lays out the timeline and arguments.
What to do when a school says “We can’t afford it”
Cost talk can feel like a brick wall. Keep the conversation on the student’s needs and the plan’s details. You can be firm without being combative.
Ask for the team’s decision in plain words
Try: “Is the team saying the student doesn’t need this service, or that the district can’t staff it right now?” If the team agrees the student needs it, the next step is delivery.
Get specifics on delivery
- Who will provide the service (role or name)?
- When does it start?
- Where will sessions happen?
- How will missed sessions be made up?
These questions are calm and concrete. They also create a written record once you recap the answers in an email.
Use one sentence when the district pushes a cheaper substitute
Ask: “Will that meet the goals as written?” If the answer is unclear, ask the team to adjust goals and service minutes so the plan and the schedule match.
Typical IEP cost items and who often pays
Districts vary, yet these pairings match how many budgets are set up.
| IEP-related cost item | Funding sources often used | What you might hear |
|---|---|---|
| Special education teacher salary | Local and state education funds; some IDEA Part B | Budgeted as staff positions, not per student |
| Paraprofessional time | Local funds; state special education funds | Assigned by schedule and student needs |
| Speech-language therapy | Local/state funds; IDEA Part B; Medicaid when eligible | Billing depends on documentation and state rules |
| Occupational or physical therapy | Local/state funds; IDEA Part B; Medicaid when eligible | Often shared across schools with itinerant providers |
| Evaluations and reevaluations | Local/state funds; IDEA Part B | Timelines are tied to law, not grant cycles |
| Assistive technology | Local/state funds; IDEA Part B; short-term grants | Device choices should match access needs |
| Specialized transportation | Local funds; state funds; sometimes IDEA Part B | Often a large variable cost |
| Behavior services and plans | Local/state funds; IDEA Part B; state health programs | May include staff training and planning time |
How to keep services from quietly slipping
Even when funding is not the issue, staffing gaps and scheduling problems can lead to missed sessions. A light tracking habit helps you catch problems early.
Keep a one-page service log
Track date, service, scheduled minutes, minutes received, and a short note. If you see a pattern, send a short email: “My log shows three missed sessions this month. What is the plan for make-up time?”
Ask for make-up time with a date attached
When sessions are missed, ask: “How will the district make up the missed time, and by what date?” If the answer is “we’ll try,” ask the team to write a make-up plan in the meeting notes.
One clear takeaway before you leave
Federal law requires IEPs. Federal funding helps pay for special education. Most costs still sit with states and districts. When a school raises cost, pull the conversation back to needs, minutes, providers, start dates, and progress data.
If you want a longer policy read later, the references below include a federal funding history report from the National Council on Disability.
References & Sources
- Congressional Research Service (CRS).“The Individuals with Disabilities Education Act (IDEA), Part B.”Explains how IDEA Part B grants work and the conditions tied to federal funds.
- U.S. Department of Education, Office of Special Education Programs (OSEP).“State Formula Grants.”Describes IDEA formula grant programs and how funds are awarded to states.
- Centers for Medicare & Medicaid Services (CMS).“School-Based Services Resources.”Links to CMS guidance and technical resources for Medicaid school-based services and claiming.
- National Council on Disability (NCD).“Broken Promises: The Underfunding of IDEA.”Reviews IDEA funding history and how underfunding affects state and local spending pressures.