Iowa’s education savings account company clears fraud allegations.

Exclusive: Iowa Judge Dismisses Allegations Against Primary Class in School Choice Contract

As families in Iowa began applying for ESAs this week, Primary Class (the company that was awarded the contract with Iowa to administer the school choice accounts through its platform Odyssey) was being accused of “substantial material misrepresentations” in its bid application.

An administrative judge in Iowa has dismissed allegations that Primary Class misrepresented itself to win the school choice contract. This comes as Iowa launches its school choice program, with close to 10,000 students applying as of Friday morning. With more states implementing ESAs, the need for third-party vendors to administer the funds is rising, setting off bidding wars to win state contracts. However, the dispute among vendors in Iowa could be a sign of growing pains in the rapidly expanding market, which has some school choice advocates warning that states need to be “vigilant” in how they choose to implement ESAs and what organizations they choose to administer them.

Complaints Filed by Two Other Entities

Documents provided to the Washington Examiner by the Iowa Department of Administrative Services show complaints filed by two other entities that lost during the bidding process, Inspired Life and Student First Technologies, protesting Odyssey’s contract award. The complaints highlight two primary problems with Odyssey’s bid: misrepresenting past business relationships and undervaluing the bid.

Concerns Raised by Multiple ESA Administration Companies

While Odyssey’s cost proposal estimated just under $630,000 per year for its services, other companies had much higher costs, which they consider to be more realistic. For example, Merit, a leading contender to win the contract, estimated the cost at $3.6 million for the first year and $2.2 million for each subsequent year. A source close to the matter, who requested anonymity over fear of retribution, told the Washington Examiner that Odyssey’s business model has been to undervalue services provided at a loss to the company, win the contract based on the price, and eventually procure enough contracts in enough states to make up the lost funds.

Education Advocates Warn of Potential Abuse

Education advocates believe the burgeoning market for ESA vendors could lend itself to abuse by disingenuous companies attempting to inject themselves into a growing movement. “This controversy is a great reminder that states must be vigilant when implementing school choice policies,” Parents Defending Education president and founder Nicole Neily told the Washington Examiner. “Parents have fought too hard for the right to determine their child’s future education. We cannot afford for administrations to waste hard-fought victories.”

Implementation of Education Savings Accounts is Incredibly Complicated

ClassWallet CEO Jamie Rosenberg told the Washington Examiner: “Implementation of education savings accounts is incredibly complicated, probably one of the more complicated programs a government agency may undertake.” He added that bills setting up ESAs often do not “contemplate the challenges involved in balancing the compliance of ensuring funds reach the intended beneficiaries and are used for the intended purposes, with the highly diverse and personalized learning needs of students, with the intense demand for maximum transparency from the public.”

After Gov. Kim Reynolds (R-IA) signed the Students First Act earlier this year, Iowa joined several states in setting up accounts designed for parents to decide where to send their children to school. These education savings accounts take the normal allocation for per-pupil funding, about $7,598 for 2023-2024 in Iowa, and deposit the money into an account that parents can use to pay for tuition, fees, and other qualifying education expenses.

Reynolds’s office declined to comment, and Odyssey CEO Joseph Connor did not return a request for comment from the Washington Examiner.

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