A coalition of 15 states has taken the U.S. Department of Education back to court, filing a protective lawsuit to prevent federal officials from pulling millions of dollars in school-based youth mental health grants.
The complaint, filed July 10, 2026, in the U.S. District Court for the Western District of Washington, targets the Department of Education and Secretary Linda McMahon. It represents the latest escalation in an ongoing legal conflict over federal money allocated for hiring, training, and retaining mental health professionals in high-need, low-income, and rural public schools.
The Pivot from ‘Discontinuing’ to ‘Terminating’
According to the legal filing, the Department of Education has spent more than a year attempting to cancel funding for a specific group of grants under the MHSP and SBMH programs within the plaintiff states. The states previously secured a permanent injunction in Washington v. U.S. Department of Education after a federal court ruled that the department’s sudden attempt to “discontinue” the grants under internal policy directives was unlawful.
Following that injunction, the department issued temporary six-month continuation awards rather than full-year funding. Now, according to the new complaint, federal officials are attempting to use a alternative regulatory mechanism under 2 C.F.R. § 200.340 to “terminate” the protected grants outright by July 31, 2026.
The lawsuit quotes the federal government’s position from its recent motion for clarification, noting that the department “intends . . . to terminate some or all of the remaining grants” if the court rules that the previous injunction does not explicitly restrict its separate statutory authority to terminate awards.
The states argue this shift is a purely semantic workaround to bypass the existing permanent injunction. “But though the precise mechanism by which the Department plans to end the protected grants may have changed, its illegality has not,” the complaint states.
The Core of the Dispute: DEI Statements
The legal conflict stems from internal directives issued by the Department of Education. On February 5, 2025, the department issued a directive titled “Eliminating Discrimination and Fraud in Department Grant Awards,” which stated that “illegal DEI policies and practices can violate both the letter and purpose of Federal civil rights law and conflict with the Department’s policy of prioritizing merit, fairness, and excellence in education.” Staff were ordered to review and end grants funding what the administration deemed discriminatory practices.
A second internal directive, the “Non-Competing Continuation Discretionary Grant Award Review Policy,” was issued on June 5, 2025. It ordered staff to review approved grant applications, specifically looking at equity statements submitted by applicants under the General Education Provisions Act (GEPA).
The plaintiff states point out that Congress explicitly mandates these equity statements. Under 20 U.S.C. § 1228a(b), grant applicants are required to describe “the steps such applicant proposes to take to ensure equitable access to, and equitable participation in,” project activities. The states allege the department is retroactively using these mandatory statements as justification to terminate funding, creating a direct conflict with congressional intent.
Legal and Practical Arguments
The states bring eight distinct causes of action, alleging multiple violations of federal law:
- Rulemaking Violations: The states argue that the department implemented new, unpublished grant priorities without going through the public notice-and-comment rulemaking required by the APA and GEPA.
- Procedural Violations: The lawsuit alleges that federal officials failed to follow statutory mandates under Title VI and Title IX. The states note that even if an agency believes a grantee is violating civil rights laws, it must first advise the recipient of the failure, attempt to secure compliance “by voluntary means,” and provide an opportunity for an administrative hearing on the record before cutting funds.
- Spending Clause Violations: The states argue the department is retroactively springing vague, unannounced conditions on funding long after the multi-year grants were accepted.
- Jurisdictional Maneuvering: The states allege that the department’s “Washington Plan” explicitly instructs grantees that any challenges to the terminations can only be brought in the Court of Federal Claims, which the states argue is an unlawful attempt to strip them of their statutory right to an administrative hearing and subsequent circuit court review.
Impact on Local School Systems
The states emphasize that sudden fund terminations will cause immediate and irreversible disruption to school systems. They state that educational agencies will be forced to lay off active mental health professionals, universities will have to pull financial support and scholarships from graduate students preparing for school-based care careers, and local communities will lose critical infrastructure established after high-profile school shootings.
Furthermore, the states present economic data showing the downstream impacts on state budgets. The lawsuit notes that moving vulnerable youth away from school-based care directly increases state Medicaid expenditures and burdens local first responders. As an example, the complaint notes that delayed care often pushes students into intensive psychiatric residential treatment facilities, costing Oregon up to $972.93 daily, or secure inpatient residential treatment at $1,630 per day.
Similarly, the State Superintendent of Education for the Illinois State Board of Education noted that a lack of providers exacerbates special education disputes. The superintendent stated that during the 2024–2025 school year, Illinois spent $417,000 contracting with private attorneys just to investigate and adjudicate due process complaints from parents seeking appropriate services for their children.
Next Steps in Court
The plaintiff coalition includes the states of Washington, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Michigan, New Mexico, New York, Oregon, Rhode Island, Wisconsin, and the Commonwealth of Massachusetts.
The states are asking the court to set a hearing for July 24, 2026, to coincide with the department’s clarification motion in the original case. They are seeking a formal stay of the directives, an order vacating the department’s termination plan, and a judicial declaration that the department cannot use newly altered agency priorities to terminate active federal grants.
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