The Implications of H.R. 1 for School Funding and What States Can Do

This blog is part of the series, Money Matters, exploring research on the role of school funding in advancing equitable opportunities and outcomes for all students and elevating evidence-based policy and practice solutions. 

Federal actions that limit access to public health and nutrition programs will impact states’ K–12 education funding systems and public school students. The recently enacted One Big Beautiful Bill Act (H.R. 1), signed into law on July 4, 2025, includes significant cuts and new barriers to access Medicaid and the Supplemental Nutrition Assistance Program (SNAP). These shifts, which include stricter eligibility requirements, income thresholds, and documentation requirements, will not only affect the well-being of children and families but will also disrupt how states identify and target funding and programs to students from low-income households.

Because many state education funding formulas rely on Medicaid or SNAP enrollment to determine which students qualify for additional resources, declines in program participation could artificially reduce the number of students counted as low income, even when family incomes remain unchanged. H.R. 1 also makes significant new investments in immigration detention and deportation, which will affect student attendance and enrollment and, in turn, the funding schools receive.

Although some of H.R. 1’s provisions won’t take effect for another year, this blog explores how the bill could impact state school funding systems and outlines actions state leaders can take now, while planning for the future, to ensure accurate counts of students from low-income backgrounds and promote funding stability and equity.

How States Identify Students From Low-Income Backgrounds

Accurately identifying students from low-income backgrounds is critical for many reasons, including determining access to programs, targeting additional resources to students with greater needs (e.g., through state funding formulas), and maintaining reporting and accountability systems that disaggregate data on opportunities and outcomes for different groups. Changes to these student counts can affect both the amount and distribution of education funding.

Currently, 44 states provide additional funding in their K–12 education funding formulas for students from low-income backgrounds; however, there is no universal method for identifying and counting these students. States use proxy measures for student poverty, the most common of which are eligibility for free or reduced-price lunch (FRPL) and participation in federal benefits programs such as Medicaid, SNAP, and Temporary Assistance for Needy Families (TANF). As of 2024, 27 states used FRPL eligibility to identify students from low-income backgrounds. At least 11 states and the District of Columbia use enrollment in federal benefits programs, relying in full or in part on a process called direct certification to match student data to administrative records from SNAP, Medicaid, TANF, and other programs. Direct certification allows states to capture students from low-income backgrounds in their school funding formulas, even in the absence of income verification forms.

Accurate counting of students from low-income backgrounds is also critical for the provision of school meal programs. Historically, FRPL counts relied on household applications. Today, those counts are increasingly linked to participation in federal benefits programs rather than application collection. Students in households participating in SNAP, TANF, and the Food Distribution Program on Indian Reservations are categorically eligible for free school meals, and states use the same data-matching process to automatically certify these students for school meal programs without requiring a household application. Most states also use participation in Medicaid for direct certification of students for FRPL.

Potential Effects of H.R. 1 on Student Counts

As state funding formulas have come to depend more heavily on enrollment data from Medicaid and SNAP to identify students from low-income backgrounds, federal changes to these programs could have a substantial impact on school funding. Specifically, H.R. 1’s changes to Medicaid and SNAP are likely to reduce participation in these programs. Because many states rely on federal program enrollment data, reduced participation will result in lower, less accurate counts of students from low-income backgrounds, even if their families’ incomes remain the same or even decline. This will ultimately lead to less funding for schools serving students in need.

While declines in federal program participation and the associated student undercounts will appear across most states, states that rely exclusively on direct certification in federal benefit programs for their funding formulas—Delaware, Illinois, Indiana, Louisiana, Rhode Island, and South Carolina—may experience the largest impacts. An Urban Institute analysis found that undercounts could also be severe in states with large populations of school-age children enrolled in only one social assistance program, as these children would be more vulnerable to losing their direct certification status if they were unenrolled from that program.

The Impact of Immigration and Customs Enforcement Actions on School Funding Formulas

Beyond the impact of changes to federal benefit programs, H.R. 1 could also reduce school funding by exacerbating declines in student attendance and enrollment, a key factor in most state education funding formulas.

H.R. 1 provides a combined $90 billion to detain and deport immigrants, leading to an increase in immigration enforcement activities, which research indicates can affect attendance in some communities and contribute to student absenteeism. Millions of families could be affected, as one analysis found that 1 in 6 school-age children nationwide live in a household with at least one non-citizen adult (lawfully present or undocumented).

School districts are already reporting declines in attendance. Research from California’s Central Valley found that local Immigration and Customs Enforcement raids were correlated with a 22% increase in daily student absences. A study conducted during President Trump’s first term reported short-term spikes in student absenteeism of up to 11 percentage points among targeted groups and long-term enrollment declines of 2 percentage points following major enforcement incidents.

Because state funding formulas for public schools are based on student attendance and/or enrollment, any declines will also reduce the funding schools receive. Districts serving large immigrant student populations are most at risk.

Recommendations and Considerations

States have a range of options, both immediate and longer term, to address H.R. 1’s possible impact on counts of students from low-income backgrounds, declines in student attendance and enrollment, and ultimately, state education funding formulas. Lessons can be drawn from how states previously responded to sudden enrollment declines or disruptions in measuring student poverty—such as those experienced during the COVID-19 pandemic, or earlier shifts from FRPL eligibility to community eligibility provisions.

Short-Term Actions: Stabilizing Funding Now

In the coming months, states can mitigate the immediate effects of student undercounts and declining enrollment and aim to maintain stability in district funding through short-term measures. Options include:

1. Implement hold harmless provisions to ensure that districts receive at least as much funding as the prior year, similar to those used during the pandemic. For instance, North Carolina defined average daily membership (ADM) in each public school for the 2020–21 fiscal year for funding purposes as the higher of the actual or anticipated ADM.
2. Use smoothed or rolling averages of student attendance or need counts (e.g., average daily attendance or low-income counts) to dampen short-term volatility in formula calculations, as described in this Education Commission of the States report. For example, California used a three-year rolling average of attendance to protect school districts from budgetary pressures stemming from sudden enrollment loss during the pandemic.
3. Apply a temporary adjustment multiplier to school-level counts of students from low-income families to compensate for expected undercounting due to program eligibility changes. Multipliers were often used during transitions to the community eligibility provision to get more accurate school counts of students from low-income backgrounds—federal guidance suggested multiplying the number of directly certified students by 1.6 to approximate the share of students who would have received free or reduced-price meals if the school had collected meal applications.

These strategies can buy states time to assess the magnitude of undercounting and plan for more long-term adjustments to their funding formulas.

Long-Term Strategies: Building More Resilient Funding Systems

In the longer term, states can build more resilient and equitable funding systems that adopt comprehensive, flexible approaches to measuring student enrollment, poverty, and other markers of need (such as English learner or disability status). Long-term strategies include:

1. Supplement existing poverty measures with family-, neighborhood-, or community-based indicators of economic disadvantage, such as Colorado’s alternative “at-risk” measure, or California’s measure of “socioeconomic disadvantage.”
2. Expand the scope of direct certification to include additional public assistance programs. For example, states could follow Massachusetts’ multi-pronged certification approach to ensure students remain identified even when eligibility for individual programs changes.
3. Retain the option for families to complete a traditional FRPL application or alternative household income form in addition to direct certification.
4. Develop more holistic measures of student need, incorporating continuous measures of family income, and capturing overlaps among vulnerable populations (e.g., students experiencing homelessness, migration, or limited English proficiency). This Learning Policy Institute report and Data Quality Campaign fact sheet outline comprehensive strategies for improving student need measurement.

By combining short-term stabilization measures and long-term data and funding formula improvements, states can better safeguard the adequacy and equity of school funding and prepare their education funding systems to adjust to the changes associated with provisions in H.R. 1 and related federal actions. The actions states take now in response to H.R. 1 will determine whether their funding systems continue to promote equitable opportunities for all students in the years ahead.

Learning Policy Institute policy and research experts Jessica Cardichon and Lucy Sorensen contributed to the research underlying this commentary.