Department of Education threats and Windows 11 refresh to drive record growth for state-level education channel

With the Windows 11 refresh on the horizon and uncertainty surrounding the Department of Education’s future, Canalys predicts the state-level education channel will see growth north of 20% in 2025 to become a US$850 million partner opportunity. In contrast, the federal education channel is expected to stagnate and become increasingly focused on financial services.

Canalys anticipates most states, particularly Democrat-led states, to vastly increase their education spending in anticipation of the Department of Education’s closure. In the last week, it has become evident that US President Donald Trump intends to follow through on his campaign promise to shut down the Department of Education. He is bound to encounter stiff political resistance in closing down the Department, particularly since its funding is something Congress controls, not the White House. However, regardless of whether the department is shut down or not, President Trump’s actions will change the behavior of US states.

Department of Education cuts will stagnate, not reduce, education technology channel revenue at the federal level

The federal education channel, which earned US$695 million in 2024, is smaller than the state education channel, which earned US$711 million in 2024. The state education channel is also larger as a share of the market - the state education channel accounts for 4.6% of all state-level channel revenue, while in comparison, the federal education channel accounts for just 1.2% of all federal channel revenue. No partner in the Federal Top 50 index listed their top customer as the Department of Education. This is in stark contrast to the State Top 50 index, where ePlus, Slalom, CDW and SHI International all counted the educational channel as their top customer. 

Even if the Department of Education is closed, states will not be losing a significant source of funding for their school systems’ technology operations. This is because the operation and funding of state primary, secondary and university systems largely occur at the state and local government level. While it varies from state to state, only 5% to 25% of a state’s education funding for primary and secondary schools comes from the federal government. This figure is even smaller for technology spend, as most federal education grants to states do not focus on technology.

The federal and state education markets are thus very different from one another; the state education channel is dominated by large-scale PC purchases and integrations for state-run schools, while the federal education channel is dominated by financial and administrative services for student loan processing. The four education partner leaders at the state-level listed above, accounted for less than 1% of all education revenue at the federal level in 2024. This is because the federal Department of Education has a large demand for financial services and consulting rather than bulk orders of equipment. Maximus earned 58.7% of all federal education spending in 2024, acting as the processor and contact center for federally-owned student loans and debts. Accenture Federal Services, which earned 22.1%, also primarily conducted financial services for the Department.

The Department of Education’s loan program will still need to exist even if the Department itself is shut down. Student loan forgiveness is a policy advocated for by Democrats, not Republicans. The closing of the Department of Education will have very little impact on net technology channel spend at the federal level but may shift the spend to another department.

Windows 11 refresh to drive record growth at state level, none at federal level

Due to these differences, the state education channel is poised to take advantage of a trend the federal education channel is not able to - the Windows 11 refresh cycle happening this year. Microsoft will stop running Windows 10 support on 14 October 2025, which is especially consequential for school systems, which are often well behind the bell curve in terms of migrating to newer technologies.

Last year, the state education channel grew 14.25%, the fastest growth category at the state level. California generated 40.1% of all education channel revenue in 2024, driven mostly by large-scale technology equipment refreshes for its University of California school system. Since California has historically always been ahead of other states in terms of education spending, they have already largely modernized their technology, meaning that the impending refresh cycle will have less of an impact on California than it will on other states. The refresh will also have a smaller impact on New York, which spent the second-most on education in 2024 (9.2% of all spending). States outside of California and New York are expected to grow their education spending to more than 20% in 2025, up from 15.7% in 2024.

However, California is expected to remain the education spending leader. As the state most opposed to President Trump’s agenda, California is likely to increase its own education spend in response to losing a funding source in the Department of Education. Historically, California has grown its education channel spend an average of 14.4% each year over the last four years. However, this growth figure is expected to eclipse 20% in 2025.

The state channel may see an influx of new vendors and partners in 2025. Not only is the state-level education channel a larger and faster-growing opportunity for partners than at the federal level, it is also a more competitive field to play in. The federal education channel is significantly more top-heavy than the state education channel. Among the top 50 state partners, 27 engage in some level of education-related business, compared to just 12 among the top 50 federal partners. Just three partners account for 94% of all federal education channel revenue - Maximus, Accenture and Peraton. In contrast, 14 partners account for 94% of state education channel revenue. Unlike the federal level, SMBs have a legitimate chance to win significant business at the state level.

Regardless of whether President Trump succeeds in shutting down the Department of Education, his actions will affect partners and vendors, pushing them toward the state channel for Windows 11 growth opportunities and revenue stability. In 2025, the state education channel will become increasingly competitive, with the federal education channel stagnating and increasingly focusing on financial services.