How Schools Profit from Psychological Labels

We like to believe that when a child is diagnosed with ADHD or depression, it is an act of compassion—a step toward giving them the help they need. But in the modern education system, it is also a business transaction. And it’s a profitable one.

Behind every diagnosis lies a trail of paperwork, funding, and lowered expectations. Schools don’t just identify “struggling students.” They categorize them. Label them. And once labeled, those students become not just children in need, but revenue streams and statistical exceptions.

Let’s break it down.

The Diagnosis Pipeline

When a child shows signs of inattention, restlessness, difficulty reading, emotional withdrawal (all just possible symptoms of poor study habits), or simply doesn’t conform to the rigid structure of the classroom; the modern response is not to ask why. It is to assign a label.

The most common are:

• ADHD
• Depression
• Anxiety disorders
• Autism spectrum disorders
• Learning disabilities

These diagnoses do not always come from outside professionals. Increasingly, school psychologists and counselors initiate the process. Teachers are trained to recognize “symptoms,” and school staff can recommend testing based on classroom behavior alone.

Once the process starts, it is hard to resist. Parents are often overwhelmed, feeling they have no choice but to agree if they want their child to receive extra attention or accommodations.

But what few parents know is this: A Diagnosis Opens the Door to Funding

The IEP Funding Incentive

“The Individuals with Disabilities Education Act (IDEA) is a statute that authorizes grant programs that support special education and early intervention services for children with disabilities.”¹

Once a student is diagnosed with a qualifying condition, they become eligible for an Individualized Education Plan (IEP) under the Individuals with Disabilities Education Act (IDEA). With that designation, federal and state funds follow—often upwards of $13,000 per student per year, depending on the state.

That’s on top of the school’s base per-pupil funding.

In other words:

A Child with ADHD is Worth More to the School than a Child Without It.

And if the child is diagnosed with multiple conditions? The funding can increase further.

Some districts have come to rely on these enhanced funds to patch budget shortfalls, hire aides, or meet performance mandates. This creates a perverse incentive: the more kids labeled; the more money received.

Lowered Standards, Hidden Gains

There is another benefit to labeling students: academic performance measurements become flexible.

Schools are judged by test scores, graduation rates, and student achievement data. But students with IEPs are often:

• Tested under different conditions
• Exempt from certain performance metrics
• Counted separately in district-wide averages

This means if, a student with an IEP, scores poorly or underperforms, their data doesn’t weigh as heavily—or at all—against the school’s official performance statistics.

In plain terms:
Labeling a child allows the school to take in more money and simultaneously protect its report card.

Who Really Benefits?

To be clear, all children genuinely need help with study, but this system makes it easy for the school to handle financial problems and to obscure bad teaching results. The system has blurred the line between helping the child and serving the institution.

Here is what the current setup encourages and rewards:

• Diagnosing children for funding
• Medically labeling normal variations in behavior
• A diagnosis can convert a failing grade into a protected status—convenient for the teacher, costly for the child.
• Using mental health classifications to shield performance metrics

And once a child is labeled, it is difficult to remove that label. The system has no incentive to revisit it—because the funding remains as long as the diagnosis does.

The Cost to the Child

“Children with disabilities receive specially designed instruction and other services to meet their unique needs.”¹

While schools may benefit financially and statistically, the child pays the long-term cost.

Once labeled:

• Children are often tracked into slower or lower-level classes.
• Teachers may expect less from them.
• Their own self-perception shifts: “I have a disorder.”
• They may be prescribed medication to “manage” the problem, sometimes for years.

This does not create resilience. It creates dependence—on systems, on labels, and often on pharmaceuticals.

Worse still, it can displace real solutions. The child who is acting out because of poor or no good study habits, a broken home, poor nutrition, trauma, or even boredom, is instead diagnosed and managed—never truly helped.

A System Built to Diagnose – Not to Understand

Our education system no longer asks, “What does this child need to succeed? It asks, what category can we place them in, and what funding follows from that?

It’s not just that we’ve replaced religion with psychology. We have replaced personal insight with diagnostic coding. We traded the soul for symptoms. And education has become a (bad) management.

The bureaucratic machine does not see the child anymore. It sees an opportunity for funding, accommodation checklists, and exemptions from accountability.

This is not compassion.
It is educational avoidance.
And it is robbing children of both dignity and development.

A Final Word

Labeling can rarely be necessary but even and especially then it calls for proper remedial work that finds actual reasons for the trouble and couples that with humane and sensible remedies. But when diagnosis becomes the default solution to every behavioral or learning challenge, something deeper is broken. We are not cultivating human potential—we are harming the students to serve the masters.

Parents must be vigilant. Teachers must be brave. And policymakers must stop pretending this is all in the child’s best interest.

Because the longer this goes on, the more our schools become warehouses of the medicated and managed—children who might have soared, now quietly sidelined, all so someone could balance a budget or protect a performance report.

The question we should be asking is simple:
Who benefits when a child is labeled?

If the answer isn’t the child, then the system is broken—by design.

Click HERE if you want to help save our educational system.

References

1. Dragoo, Kyrie E. “The Individuals with Disabilities Education Act (IDEA), Part B: Key Statutory and Regulatory Provisions.” gov. 8/20/24. www.congress.gov/crs-product/R4183 Bellwether Education Partners, “Who Pays for Special Education?”
2. Education Week, “How much does special education truly cost?”
3. Cullen (2003), “Fiscal Incentives & Disability Rates in Texas”
4. Imprint News, “Cash‑for‑ADHD study…”
5. IDEA overview, Wikipedia
6. 6.Additional data on IEP and per‑pupil cost from Georgia funding model
7. Reddit report on New Hampshire funding disparities