Key Takeaways
- School-based mental health services have become the dominant access point for youth care: students are roughly six times more likely to access mental health care at school than anywhere else, and 18 percent of public school students used school-based mental health services in 2024-25.
- Federal funding has whiplashed in less than a year: the Department of Education halted nearly $1 billion in school mental health grants in April 2025, then awarded $208 million in new grants in December 2025, leaving net federal investment well below Bipartisan Safer Communities Act levels.
- Medicaid is the largest federal lever, and it is shrinking: schools receive an estimated $7.5 billion annually in Medicaid funds and 25 states have expanded billing beyond students with IEPs, but the 2025 reconciliation bill cuts roughly $1 trillion from Medicaid over a decade.
- IEP/504 services and school-based mental health are not interchangeable: IEP-linked counseling and behavior supports are educational related services under IDEA, while broader school programs reach students who do not qualify for special education, with direct implications for how ABA and other clinical services are funded on school grounds.
The youth mental health crisis that pediatricians and educators began describing as an emergency more than five years ago has not resolved. It has shifted shape. The most acute pandemic-era distress signals have edged down from their 2021 peak, but the baseline remains historically high: the CDC’s 2023 Youth Risk Behavior Survey found that roughly four in ten high school students reported persistent feelings of sadness or hopelessness in the previous year, with the figure rising to 57 percent among adolescent girls and 69 percent among LGBTQ+ youth.
Against that backdrop, schools have become the country’s de facto front door for pediatric behavioral health care. More than 70 percent of children who receive mental health services receive at least some of that care in a school setting, according to the National Association of School Psychologists, and the Department of Education’s School Pulse Panel reported that about 18 percent of public school students used school-based mental health services in 2024-25.
What is much less stable is the funding architecture beneath all of that activity. Between April 2025 and December 2025, the federal government halted nearly $1 billion in grants for school mental health staffing under the Bipartisan Safer Communities Act, faced bipartisan congressional pressure to restore them, and ultimately replaced the canceled funding with a smaller $208 million round of awards. Around the same window, Congress passed a reconciliation bill that, per Congressional Budget Office estimates, will cut federal Medicaid spending by roughly $1 trillion over ten years. Medicaid is the fourth-largest federal funding source for K-12 schools and the largest single payer of school-based clinical behavioral health services, dynamics Acuity has reported as reshaping the broader behavioral health workforce.
Medicaid, federal grants, and state funding: the three uneven streams paying for school mental health
School-based mental health services in the United States are financed through three overlapping streams. The first is district and state general funding. According to the School Pulse Panel, the share of public schools reporting district or school funds as a mental health funding source rose from 58 percent in 2021-22 to 65 percent in 2024-25. State legislatures have moved aggressively in some cases: Wisconsin shifted its School-Based Mental Health Services allocation from a competitive grant of $25 million in fiscal years 2024 and 2025 to a per-pupil allocation of $40 million for fiscal year 2026, distributed to every district and independent charter school in the state.
The second stream is Medicaid, which has expanded substantially since 2014, when CMS reversed a long-standing rule (often called the free care policy) that had limited school Medicaid billing to students with Individualized Education Programs. In 2023, CMS issued comprehensive guidance affirming that states can bill Medicaid for medically necessary services delivered to any Medicaid-enrolled student. As of early 2024, 25 states had expanded their school Medicaid programs beyond IEP-linked services, according to Healthy Students, Promising Futures. Chicago Public Schools alone receives between $35 million and $40 million annually in Medicaid reimbursement, with the district projecting an additional $10 million tied to the 2023 flexibilities.
The third stream is competitive federal grants. Under the 2022 Bipartisan Safer Communities Act, Congress appropriated roughly $1 billion across two programs: the School-Based Mental Health Services Grant and the Mental Health Service Professional Demonstration Grant. Those grants were the funding backbone for an effort to train and place 14,000 new mental health professionals in K-12 schools by the late 2020s. All three streams are now under pressure simultaneously. A Healthy Schools Campaign survey of 1,440 school district leaders found that 80 percent expect reductions and layoffs of school health staff, 70 percent anticipate cuts to mental and behavioral health services, and 62 percent foresee reductions in assistive technology and specialized equipment for students with disabilities.
The federal grant picture has whiplashed most visibly. In April 2025, the Department of Education notified roughly 260 grantees across 49 states that their Bipartisan Safer Communities Act grants would not be renewed, citing concerns about diversity, equity, and inclusion language in some applications. Bipartisan opposition followed. In January 2026, SAMHSA briefly terminated and then reinstated approximately $2 billion in mental health and substance use grants within a 24-hour window. In December 2025, the Department of Education announced $208 million in new grants to 65 recipients, with roughly $120 million directed to rural districts. The new awards represent a substantial net reduction from what was canceled, and the RISE Rule’s federal student loan caps for behavioral health graduate programs have layered an additional constraint on the workforce pipeline that schools rely on to fill open clinical positions.
Where IEP and 504 services intersect with school-based mental health (and where ABA sits)
For ABA providers and other behavioral health organizations working in or around schools, the most consequential question is often not how much money is in the system but which services qualify for which funding stream. The answer turns on a distinction between educational services governed by the Individuals with Disabilities Education Act and clinical services governed by Medicaid, private insurance, or both.
IDEA requires public schools to provide a free appropriate public education to students with qualifying disabilities under one of 13 categories. Mental health counseling and behavior intervention plans can appear as related services in an IEP when the team determines the student needs them to access education. A Section 504 plan provides accommodations for students with physical or mental impairments that substantially limit a major life activity but does not require specialized instruction. School-based mental health services funded through district budgets, state allocations, or non-IEP-linked Medicaid claims sit alongside but outside that IDEA framework.
Applied behavior analysis sits in a particularly uneasy position. ABA is widely covered by Medicaid as medically necessary under the Early and Periodic Screening, Diagnostic, and Treatment benefit when prescribed for children with autism, but schools generally do not employ Board Certified Behavior Analysts the way they employ school psychologists or speech-language pathologists. Many states explicitly exclude ABA from their school-based Medicaid reimbursable services list. Acuity has reported on the wider Medicaid policy environment shaping ABA delivery, including Indiana’s credential-tiered phasedown of Medicaid ABA reimbursement and the federal OIG audit findings tightening documentation standards across the field, both of which signal stricter credentialing requirements at every ABA delivery site, including schools.
The practical effect for students with autism is that school-based ABA arrives through one of two pathways. Either the school district funds a BCBA or ABA-trained paraprofessional through special education dollars to support IEP goals (focus, transitions, peer interaction during class time), or an outside ABA agency provides services on school grounds under a separate medical-insurance authorization, with goals oriented to non-educational outcomes. The two are supposed to be complementary.
School psychologist shortages and student-to-provider ratios: a workforce stretched thinner than the funding
Even when funding is available, schools have been unable to hire fast enough to close the workforce gap. NASP recommends a ratio of one school psychologist for every 500 students. The national average for the 2024-25 school year was 1:1,071, according to NASP’s State Shortages Dashboard, with some states approaching 1:5,000. Closing the gap would require approximately 63,000 additional school psychologists nationwide, by NASP’s estimate. The Mental Health Services Professional Demonstration program was originally designed to place 14,000 new school mental health professionals in its first cohort, a target the program is now unlikely to meet in current form.
Bipartisan legislation has been introduced repeatedly to address the pipeline. The Mental Health Excellence in Schools Act, reintroduced in May 2025 by Sens. Kevin Cramer (R-ND), Jeanne Shaheen (D-NH), Todd Young (R-IN), and Gary Peters (D-MI), would authorize the Department of Education to partner with graduate institutions to cover the cost of school psychology, counseling, and social work programs for students who commit to working in high-need schools. It has not advanced to a floor vote.
The demand side has not eased. Mental Health America’s 2025 youth report estimates that roughly 60 percent of adolescents with major depression receive no treatment. National Governors Association convenings on high-acuity youth throughout 2025 documented system-involved youth sleeping in offices for lack of placement and persistent gaps in mobile crisis response. The Trilliant Health 2026 Behavioral Health Report found that ABA visits alone have grown 309 percent since 2019 as overall behavioral health demand continues to outpace supply.
According to the Learning Policy Institute, Medicaid pays for school nurses, psychologists, speech therapists, and other clinical staff in districts where more than 40 percent of children in the median U.S. school district have Medicaid coverage. If Medicaid contracts under the 2025 budget law as projected, those positions are among the first that district leaders surveyed by the Healthy Schools Campaign expect to be cut. The 2026 fiscal cliff is not a single event. It is a series of decisions about which services to maintain, which providers to credential, and which students to count, made in school board meetings and Medicaid director offices in every state in the country.
