Stock Markets July 27, 2026 10:37 PM

U.S. Education Department Moves to Withhold Federal Funds from Two School Districts Over Transgender Policies

Department cites potential violations of FERPA in Maryland and Michigan districts and sets deadline for response

By Sofia Navarro
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The U.S. Education Department has warned two public school districts - Anne Arundel County Public Schools in Maryland and Ann Arbor Public Schools in Michigan - that they face potential cuts to federal funding over policies related to transgender students. The department says the districts likely ran afoul of the Family Educational Rights and Privacy Act by restricting parental access to information about a student's gender identity. Officials have given Ann Arbor until Aug. 10 to show why enforcement should not proceed; the department says it will take action against Anne Arundel.

U.S. Education Department Moves to Withhold Federal Funds from Two School Districts Over Transgender Policies
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Key Points

  • The U.S. Education Department alleges Anne Arundel County Public Schools improperly classified a student's gender identity as "confidential medical information," a potential FERPA violation.
  • Ann Arbor Public Schools was told it likely violated FERPA via a policy the department says requires staff to conceal a child’s transgender status from parents; the district has until Aug. 10 to respond.
  • FERPA violations can lead to the termination of federal funding; these actions form part of broader enforcement efforts by the Trump administration regarding school policies.

The U.S. Education Department has threatened to withdraw federal funds from two public school systems in separate actions tied to their policies on transgender students, the department announced on July 27. The move targets Anne Arundel County Public Schools in Maryland and Ann Arbor Public Schools in Michigan and centers on potential breaches of the Family Educational Rights and Privacy Act - commonly known as FERPA.

In its announcement, the Education Department said Anne Arundel County Public Schools classified information about a student's gender identity as "confidential medical information" not to be shared with parents. The department characterized that classification as a likely violation of FERPA.

Separately, the department said Ann Arbor Public Schools likely violated the same law by way of a policy it alleges requires "school employees to hide a child’s transgender status from his or her parents." The Education Department gave Ann Arbor until Aug. 10 to explain why the department should not pursue similar enforcement measures against that district.

The department also indicated it would proceed with enforcement action against Anne Arundel. Under FERPA, the department said, violations can lead to the termination of federal funding. FERPA is the primary federal statute that governs student education records and restricts unauthorized disclosure of personal information contained in those records.

Anne Arundel County Public Schools responded in a statement cited by a local NBC affiliate, saying it learned of the Education Department's assertions through the department's public statement and that it had not received formal correspondence, notice or supporting documents. The district said, "Once such information is received, AACPS and its legal counsel will carefully review it and respond through the appropriate process." Ann Arbor Public Schools did not immediately comment.

The actions are the latest example of attempts by the administration of President Donald Trump to press schools and other educational institutions over transgender-related policies. The administration has in recent months sought to withhold federal funds from schools for a range of policy disputes, citing issues including transgender policies, climate initiatives, pro-Palestinian demonstrations related to the war in Gaza and diversity programs.

Civil rights organizations have criticized such moves, arguing that they infringe on academic freedom, free speech and due process rights. The Education Department's statements following its determinations made clear that enforcement under FERPA remains the mechanism available to the department when it alleges unauthorized disclosures of student information.


Next steps: The Education Department will pursue enforcement action against Anne Arundel and has set an Aug. 10 deadline for Ann Arbor to provide reasons why similar action should not be taken. The department has warned that confirmed FERPA violations can result in the termination of federal education funding.

Risks

  • Potential loss of federal education funds for the affected districts, which could strain local school budgets and public education finance - impacts felt in the education and public finance sectors.
  • Legal and procedural disputes over FERPA interpretation and enforcement, creating uncertainty for school administrators and legal counsel in the education sector.
  • Heightened tensions between federal authorities and school districts over policy enforcement, which may influence district-level governance and compliance costs in education.

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