HHS Finalizes Changes to Child Care Subsidy Rules—What It Means for Families, Providers, and States
By Lee Johnson III, PhD, Early Childhood Education Senior Fellow
The U.S. Department of Health and Human Services (HHS) recently finalized changes to the Child Care and Development Fund (CCDF) program through a rule titled “Restoring Flexibility in the Child Care and Development Fund.” The final rule rescinds several requirements established in the 2024 CCDF rule related to family copayments, provider payment practices, and the use of grants and contracts to expand child care supply.
Under the final rule, states are no longer federally required to:
- Cap family copayments at 7 percent of household income;
- Pay child care providers prospectively, or at the beginning of the service period;
- Pay providers based on enrollment rather than attendance; and
- Use grants and contracts to expand child care supply for priority populations.
While states may continue implementing these policies voluntarily, the removal of clear federal baseline protections may lead to greater variation in affordability, access, and provider stability across states.
Earlier this year, the Southern Education Foundation (SEF) submitted public comments expressing concern about the proposed changes and their potential impact on families, providers, and communities, particularly across the South, where child care supply shortages, affordability challenges, and long-standing underinvestment continue to pose challenges for working families.
SEF’s concerns centered on several issues.
First, removing the 7 percent copayment cap could increase financial strain on families receiving child care assistance. Before the 2024 rule, analyses showed that in some states, some families could pay well above 7 percent of their household income toward child care costs, depending on income level and state policy design. For example, several Southern states exceeded the federal 7% affordability benchmark, including Alabama (10%), Florida (9%), North Carolina (10%), and Missouri (14%). In contrast, states such as Kentucky, Louisiana, and West Virginia have more recently moved toward alignment with the federal standard. Furthermore, research shows that child care becomes unaffordable when families must spend a disproportionate share of their income on care. Without a consistent federal standard, affordability may increasingly vary by geography and state policy choices.
Second, rescinding requirements related to prospective and enrollment-based payments may create additional financial instability for child care providers operating on already narrow margins. Predictable payment practices help providers manage fixed costs such as payroll, rent, insurance, and staffing. Instability in reimbursement practices can discourage provider participation in subsidy programs and reduce families’ real access to care.
Third, removing requirements related to grants and contracts may make it more difficult for states to intentionally expand child care supply in communities where market-based approaches alone have not generated sufficient access, particularly in rural areas and underserved areas across the South.
At the same time, the final rule does not prohibit states from continuing these practices. States retain the ability to maintain copayment caps, enrollment-based payment practices, prospective payment systems, and the use of grants and contracts to support child care supply. And we encourage states to take individual action to make child care more affordable for working families.
SEF remains concerned about uneven implementation across states and continues to encourage states to maintain policies that support affordability, provider stability, and meaningful access to child care for working families.
The final rule will take effect 60 days after publication in the Federal Register, with implementation decisions now shifting primarily to states. In the absence of consistent federal baseline protections, state choices will increasingly determine whether families can access affordable, stable, and high-quality child care.
SEF will continue monitoring these developments and engaging partners across the South to support policies that strengthen child care access and stability for children, families, and providers.