Another big distinction is that Special Education is federally funded (in very complicated ways), while Modification Plans are not funded. In some districts, schools have a financial incentive to find your student eligible for IDEA, so if school staff says your child does not need an IEP, they probably do have the best interest of your child in mind.
I think in an ideal world/school district, this would be true - when the school didn't recommend an IEP it would be in the best interest of the child (Beckee, if I've misunderstood what you've written, I apologize!). In the school district my children attend, and in the school districts that many of my friends' children attend, the reality is that the schools are very short-funded and short-staffed in the area of specialists who are needed to give services to children who have a need that would be addressed under an IEP, and there are schools who operate under an agenda to *not* qualify students for an IEP. I won't pretend to understand how the federal funding works, but fwiw the school my son was in at one point was actually in danger of losing their federal funding due to non-compliance with IDEA. They told a *lot* of kids, including my ds, that they didn't need an IEP - and in at least this one case, it wasn't because the child didn't need it. Even after he had an IEP in place, he still wasn't getting the help he needed (and that was outlined in the IEP)... so sadly, not all schools are operating under the "what's best for the child" ideal.
Beckee, please know I'm not trying to pick apart what you said - you are obviously a very caring teacher. Both of my parents were teachers and I respect teachers soooo so very much! I wish my experiences in advocating for my ds in public schools had been very different, and I know that there are many great school districts out there where kids who need IEPs will get their IEPs and get what they need from the school. I write about our experience for two reasons - 1) it's not all that uncommon from what I've heard from other parents and 2) it's easy to go into the process trusting that the school is looking out for your child - and if they do try to pull the wool over your eyes, unless you've done your research outside of the school, it is easy as a parent to just take everything that's said at face value. Plus it's also tough to advocate for assistance when you have an EG kiddo who has huge IQ scores and huge achievement scores in their areas of strength - some teachers will pass off areas of challenge as the student simply "not trying".
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