Arizona State Treasurer Kimberly Yee announced that her office will seek information from other vendors to improve accountability and access in the Educational Savings Account (ESA) program’s online marketplace. The move comes amid concerns over ClassWallet’s operation of the current platform.
Yee proposed improving or replacing the ESA payment platform, strengthening front-end controls to prevent improper purchases, and reinforcing fiscal accountability through better system design. With ClassWallet’s state contract expiring at the end of the year, the Treasurer’s Office issued a Request for Information (RFI) to evaluate other vendor platforms. ESA programs currently operate in 19 states using a range of financial platforms according to Yee.
The ESA program has faced scrutiny after Phoenix-based 12News obtained Arizona Department of Education records showing at least $10.3 million in alleged misspending from the state’s roughly $1 billion voucher program. The records identified banned purchases including electric dirt bikes, custom tires, condoms, lingerie, and other sexually explicit items.
ClassWallet’s fee structure shows that they charge a 2% fee on each transaction, with an additional charge for vendors just to participate in the program, ranging as high as 15%. As a result, ClassWallet’s nationwide vendor list includes just 250 vendors, with some restricted by state.
A survey conducted by The Heritage Foundation catalogued respondents’ concerns with ClassWallet fees described as too high or complicated and a lack of vendors in the Marketplace. Respondents cited 2% tuition transaction fees, Marketplace prices higher than vendors’ regular websites, and therapists declining to sign up because of fees and long reimbursement waits.
The decision follows scrutiny of Arizona’s ESA program, which allows families to use state funds for private school tuition, at-home curricula, tutoring, special needs therapies, and other education expenses. According to the Goldwater Institute, the program grew from 140 students in 2012 to nearly 12,000 by 2022. The report also says Arizona public school funding increased by more than $1,600 per student since the program began, and that each student who switches to an ESA sends nearly $1,000 in forfeited state funds back to the public school system.
