'Venmo government': Untested companies handed millions as states expand school vouchers

Last April, West Virginia awarded a nearly $10 million contract to a company called Student First Technologies to manage the state’s Hope Scholarship program, which gives families about $4,900 per child to spend on private-school tuition and homeschooling expenses. The company’s founder, Mark Duran, reacted with delight. “We are very excited to serve your great State,” he wrote.

But problems soon emerged, as reflected in emails obtained by a ProPublica public-information request. Some private schools were so late in receiving their voucher payments from families that they were having trouble meeting payroll. In late August, a state official wrote to Duran with a list of invoices that needed to be paid promptly, including three from a school, Beth Haven Christian in Chauncey, that had “called and indicated they are experiencing significant cash flow issues.” The email continued, “We need to make sure they have their funds early in the day if at all possible.”

The school eventually got its funds. But the episode highlights the challenge that states are facing with their rapidly expanding school-choice programs: making sure the taxpayer money they are allowing families to spend on behalf of their kids is being processed efficiently and properly. To do so, they are relying on a small group of fledgling companies that have seized the opportunity to serve as middlemen for this fast-growing market. The work can be lucrative, but it has also proven so daunting that in several states, the companies that carry it out have ended up losing contracts to their rivals — sometimes less than a year after winning them — as questions arise and audits and lawsuits pile up.

An idea sold on the basis of its simplicity — give parents money to spend on their kids’ education as they see fit — has turned out to be anything but simple in practice. And this complexity comes at a cost: paying companies to run the programs.

There are now a dozen states in the country that offer universal private-school vouchers, making them available to families of any income level. The largest of those programs, in Florida, is now costing taxpayers nearly $3 billion a year, with the programs in Arizona and Ohio each drawing around $1 billion a year from taxpayer funds.

In some of the states, the money comes to parents in the form of “education savings accounts,” which can be used on education-related expenses other than tuition. These programs are especially complex to implement, since some form of oversight is needed to make sure families are spending the money in ways that comply with the rules.

Angling for the task of managing this spending are four companies. The largest is ClassWallet, which is based in Hollywood, Florida. Its founder, Jamie Rosenberg, initially offered its online procurement technology to teachers and administrators to reduce the amount of paperwork involved in school expenditures. But the company has shifted to capitalize on the school-choice market. With backers including Lazard Family Office Partners, a global investment firm, ClassWallet has more than 200 employees and contracts in more than 10 states, among them Florida and Arizona, the latter of which has faced headlines about some parents using state education aid for questionable purchases as the cost of its program has swelled far beyond projections.

The smallest is Student First, based in Bloomington, Indiana, with 14 full-time employees. Both its founder, Duran, and its chief technology officer were educated in alternative settings, including homeschooling and so-called learning pods — kids from multiple families clustered together — and say they view the company as part of the larger cause of promoting school choice. Duran, 30, previously worked for his family’s homebuilding company in northern Michigan, served as lifestyle assistant and boat captain for an executive couple and their family, and helped deliver a yacht on a 4,000-mile journey from northern Michigan to Key Largo, Florida, via Nova Scotia, Canada, and Nantucket, Massachusetts.

The other two companies fall in between in scale. Odyssey, based in lower Manhattan, was founded by Joseph Connor, 37, a former teacher and lawyer who had previously created a company called SchoolHouse, which connected teachers with the learning pods that sprouted up during the pandemic. Odyssey, with about 40 employees, has received investor funding from Andreessen Horowitz and Tusk Venture Partners, among others. It works with Iowa and Wyoming and recently won contracts for the newly expanding voucher programs in Georgia and Louisiana.

The fourth, Merit International, is based in Silicon Valley, and it likewise has considerable venture-capital backing, including from Andreessen Horowitz; its contracts include programs in Ohio and Kansas. The 100-person company also manages payments for government programs outside of education. One of its co-founders, Jacob Orrin, said in an interview that he, too, was drawn to the school-choice business by his background: He struggled in school when he was young, and he says he would have greatly benefited from having had more educational options. “We’re mission-driven — but we make a profit,” he said.

Competition among the companies often gets fierce as they face off in state after state. They dispatch lobbyists to cast aspersions on their rivals with legislators and state officials. They try to influence the legislation creating the voucher programs to tailor them to their company’s offerings. They feed whisper campaigns among parents about problems arising in states where their rivals are in charge.

In Iowa, after Odyssey won that state’s contract in 2023, Student First and an Iowa organization it was partnering with brought a legal challenge, alleging “substantial material misrepresentations” by Odyssey; an administrative judge dismissed the suit.

In Arkansas, the state had selected ClassWallet in 2023 to manage its Education Freedom Accounts, which give families about $7,000 per student. But last spring, the state considered switching to Student First to save money. A lobbyist for ClassWallet paid visits to state legislators, warning them that this was a bad idea. “They sent someone to talk to me,” recalled state Sen. Bart Hester, a Republican from Cave Spring. The lobbyist for ClassWallet explained that the company has three times the number of employees as Student First. “‘There’s no way they can do it,’” the lobbyist said, according to Hester.

Student First won the contract, worth about $15 million over seven years. But by October, state officials had decided to switch back to ClassWallet, saying that Student First had missed deadlines to set up the program, was late in processing payments, and owed the state $563,000 in fees as a result of the delays. “Student First Technologies is proud of our work to empower Arkansas families,” Duran wrote in a response to questions from ProPublica. (Of Student First’s experience in West Virginia, he said the company has been making “month-on-month improvements, and this will never stop.”)

ClassWallet previously became embroiled in difficulties one state over, in Oklahoma. A 2022 investigation by The Frontier and Oklahoma Watch found widespread questionable spending under a program in which Gov. Kevin Stitt, a Republican, provided $18 million in federal pandemic-relief funds for families to use for private-school vouchers or educational materials, to be overseen by ClassWallet. Some used the state aid to buy Christmas trees, gaming consoles, electric fireplaces, outdoor grills, dishwashers, pressure washers, car stereo equipment, coffee makers, exercise gear, smartwatches and at least 548 TVs.

The 2022 article quoted Rosenberg, the ClassWallet CEO, praising the program at a 2020 panel discussion: “They were literally able to deploy $18 million without having to engage any human capital from the government agency, and for it to be almost hands-free and incredibly, incredibly streamlined.” But a subsequent federal audit reported that ClassWallet had blamed Oklahoma for the abuses, saying that the company had offered to limit purchases to items preapproved by the state, but that a teacher who helped arrange the contract — Ryan Walters, now Oklahoma’s education secretary — had declined this option. (Walters did not respond to a request for comment.)

The problems with the program sparked an odd three-way legal fight, with Stitt attempting to sue ClassWallet and Oklahoma’s own attorney general opposing the governor and blaming problems on poor state oversight. (The Stitt administration is still pursuing the case, now using outside lawyers. ClassWallet has said the claims are “wholly without merit.”) The company declined to respond to specific questions, but spokesperson Jason Hart provided a statement saying “ClassWallet is the country’s most trusted citizen digital wallet technology platform.”

In Idaho, ClassWallet had the contract to administer an early-pandemic initiative that evolved into what is now called Empowering Parents, a $30 million state program that gives families up to $3,000 each for supplemental educational expenses. The current system could be a possible prelude to a full voucher program, which is up for debate now in the Legislature. Odyssey won the contract in 2022, for $1.5 million per year. A year later, the state ordered an audit after receiving reports of spending on clothes, TVs, smartwatches and other noneducational items. The audit found that only a tiny sliver of purchases were inappropriate, but it ordered Odyssey to pay back the state for $478,656.22 in interest it had collected from unspent federal funding for the program.

Meanwhile, parents and business owners were reporting other issues with the program under Odyssey’s oversight, as reflected in emails obtained under a Freedom of Information Act request filed by ProPublica. Last February, Tina Stevens, the owner of a music store and academy in Coeur d’Alene that is one of the program’s biggest vendors, wrote to her state senator saying that she had lost $10,000 because families were unable to access their funds to pay for music classes. She also wrote that Odyssey’s requirement to ship all purchases to families was wasting money. “The Odyssey system is rife with more fraud than we ever saw last year and super easy to cheat,” she wrote. Stevens elaborated in an interview, saying that in one instance, she was required to ship a digital piano via a freight truck, at a cost of $423, even though the family it went to had come in person to select it. And it took her 1,000 hours, she said, to build the separate website that Odyssey required vendors to have for the program.

Still, she said, the difficulties had not undermined her support for the program. “Parents and kids need musical products and a lot of kids can’t afford it,” she said. “I’ve had mothers coming in the door crying, saying ‘I never thought I could get a musical instrument, and now my kid can have something I never thought they could have.’”

In September, the director of the Idaho State Board of Education, Joshua Whitworth, wrote to Odyssey’s CEO, Connor, listing problems, including “ongoing customer service concerns,” sales taxes charged in error, and vendors being owed payments since January 2024. Connor replied with a lengthy email defending the company, saying that the company had an above-average customer satisfaction rating in Idaho and paid out the “vast majority” of orders within a week. But days later, Idaho said it was switching back to ClassWallet.

Emails show ClassWallet executives and lobbyists celebrating their victory and collaborating with state officials over how to word the announcement. “The tone of this one was markedly more vicious,” said one of the participants in the Idaho competition, describing the latest round. “It’s like two heavyweights exchanging blows.”

In response to questions about the loss of the Idaho contract and the problems that preceded it, a company spokesperson said, “Odyssey’s bid was undercut on price and the decision to rebid had nothing to do with performance.”

In an interview, Orrin, the Merit co-founder, said the programs’ problems were due partly to states coming under pressure to limit costs and expecting companies to operate them at thin margins. “At a certain level, as states continue to squeeze on these budgets, it will be hard for anyone to deliver successfully,” he said. Some companies were contributing to this by making unrealistically low bids and were then having trouble delivering. “Some of the companies in this space are trying hard to chase the dragon,” he said.

Vanessa Grossl, who worked for ClassWallet before being elected last fall as a Republican state representative in Kentucky, calls the new mode of spending “Venmo government” and predicts it will improve with time. The novelty of the programs has “gotten some of them in trouble,” she said. “But you have to uncover those bugs in any new system. It’s worth the price of innovation and discovery for working through the bugs.”