Building a Public Education MarketPlace

Jamie Rosenberg, founder and executive chairman of ClassWallet, joins me to explore the evolving landscape of education savings accounts (ESAs) and the broader push toward education choice. Jamie shares the origin story of ClassWallet and discusses how the company is innovating digital wallet solutions that streamline the flow of public funds to families, educators, and nontraditional providers. The conversation sheds light on the challenges families and entrepreneurs face in navigating new ESA programs, the delicate balance between agency and accountability, and how states can design effective policies that empower both families and innovative education providers.

Michael Horn

I’m Michael Horn. You’re joining the show where we’re dedicated to creating a world in which all individuals can build their passions, fulfill their potential and live lives of purpose. And to help us think through that today, delighted to bring Jamie Rosenberg to the show. Jamie is the founder and executive chairman of ClassWallet, which we’re going to hear a lot more about the show. And Jamie and I were in a conversation a few months back with a bunch of others around this growing education savings account space with a bunch of insights that really struck me around the market and how to create a really robust one between demand and supply.

So delighted to get into all of that today. Jamie, welcome to the Future of Education. Thank you so much for joining me. I appreciate you being here.

Jamie Rosenberg

It’s great being here, Michael. I appreciate the invite.

Michael Horn

Yeah, no, I’m delighted to learn from you. And before we get into some of the ways that the market is emerging, I, I want to start out with ClassWallet origin story, if you will. You all were founded in 2014, well before education savings accounts was sort of the movement I think that it’s becoming national at the moment. And so I’m just curious, like, what did the company start out as? What was the opportunity that you saw that you felt like ClassWallet can really fill this need in the country’s ecosystem?

Jamie Rosenberg

Sure. This is my second company. So to understand the formation of ClassWallet, let me just share with you how I.

Michael Horn

Yeah, origin story. Good.

Jamie Rosenberg

Yeah, of course. So my personal and professional mission has always been to try to get the dollars as close to children as possible. I started my career as a lawyer, at one point in time was mentoring a student at a nearby school in Miami for mentally and physically delayed pre kindergarten aged children. And during that experience, I really just had a life changing experience and really wanted to understand how I could help children in an educational environment as much as possible. So I started my first company in 1998, which was Adopt a Classroom, which was a crowdfunding platform for teachers as a way of trying to get philanthropic dollars as close to that child and in that learning environment as effectively as possible. So I grew that to be one of the larger education philanthropies in the country. By the time I left, I had raised and distributed about $25 million to teachers in 30% of U.S. public schools.

Education Funding for Children’s Success

Jamie Rosenberg

The origin of ClassWallet germinates from there because in that journey I had developed a way of getting money in a compliant, impactful way as close to that child, and realized that I could help more children, more students by taking that technology and delivering it to the system, the school systems and state systems. And that was the impetus and catalyst to start ClassWallet in 2014.

Michael Horn

And so what were those initial customer relationships like what was the dollar flows funding from to and so forth?

Jamie Rosenberg

Yes. So the initial focus and hence the brand name was really helping LEAs and school districts get their funding down to the classroom more effectively. K12 is a trillion dollar budget, yet teachers spend $1,000 out of their own pocket every year. I mean, it’s just a huge disconnect. So we started out selling to school districts and today about 6% of public school teachers in America actually have a ClassWallet account, almost like a teacher savings account, where they get access to a wallet and can purchase the learning goods and resources they need to meet the learning needs of their students. And then in 2017, we evolved to sell ClassWallet into the state agency space, really solving similar problems for education savings accounts. And since then we have become a market leader in school choice, but have also been used in other agencies like early child care, workforce development, and health and human services.

Michael Horn

Yeah, I noticed that. And before we get to the ESAs, just, just say a word about those other three areas because I think it’s interesting that you get to serve those as well as sort of this core K12 ESA market.

Jamie Rosenberg

The underlying theme is that it’s all the same problem. The challenge in trying to get public money to the right people and ensure those people not only use it for the right purpose, but ultimately have the biggest impact for that program lies in a point of intersection where policy intersects with rubber hits the road implementation and compliance. And our innovation has been able to unlock that friction point and maximize that impact of that dollar. And that applies to a dollar reaching a family for ESA equally as it implies reaching a family who might be getting early child care subsidy or an adult learner who has a grant from an agency to further their career journey. So it’s all the same problem. And our innovation has been able to maximize outcomes of programs across various types of programs.

Michael Horn

Say more about that because I think then as we get into the ESA space, sort of the counterfactual right. If ClassWallet hadn’t existed, I imagine would be we have dollars theoretically flowing from state coffers, to families in a private wallet to spend on education providers, both schools, as well as other options, tutoring and so forth. I can imagine that would have been a very bureaucratic application, paper and pencil, sort of heavy set of things like that. Friction would have been really real. How do you all come in there and facilitate and streamline those dollars reaching the families themselves? What’s the innovation there itself look like?

Jamie Rosenberg

So to talk about our innovation, I’ll give you just a touch upon briefly what existed before our innovation.

Michael Horn

Perfect.

Jamie Rosenberg

So you can understand the impact. So prior to our introduction of digital wallet technology, states really only had two choices, a debit card or reimbursement.

Michael Horn

Yep.

ESA Funding Solution

Jamie Rosenberg

So how does the state get $100 million to, you know, 30,000 families on a debit card? Not only that ensures using it according to the rules, but can get the data it needs. You can imagine how challenging that might be. And reimbursement of course is equally challenging, forcing families to spend their own money and submit receipts. So that was the ESA market prior to ClassWallet. What our innovation does is a digital wallet that gives families immediate access to the funds and allows them to spend those funds within vendors and for goods that the rules of the program are already embedded in the system. So they have agency to get what they need, but also the ease of knowing that what they’re doing and what they’re buying is compliant to program rules.

Michael Horn

So you’re effectively solving the compliance thing proactively. So it’s hard coded, if you will, into the digital wallet and the set of market options that they’re seeing has already been vetted. And you have solved that sort of question in their mind of if I’m allowed to do this, is that a fair way of saying it?

Jamie Rosenberg

I’m saying that we solve an outcome problem, not a compliance problem. The compliance is the root cause as to why programs don’t get the outcomes they want. But what we’ve been able to do is by solving the compliance problem, we create a two sided marketplace and give families access to the breadth of innovation and all the providers that can support that child’s unique personalized learning needs with an incredible powerful market. If that makes sense.

Michael Horn

Yeah, it makes a ton of sense. So then talk about how many states are you supporting today in their ESA policies out there? Just give us a sense of the market that you all are serving at the moment.

Jamie Rosenberg

We currently serve nine ESA programs and in addition we serve other programs that give money to families but may not necessarily be used for tuition. So they’re not school choice under the classical definition, but they are what I would call education freedom, where families are getting funding from, from state agencies and can self direct how those funds can ultimately improve their children’s outcomes.

Michael Horn

Gotcha. And then so you have this fascinating bird’s eye view effectively into these markets that are getting created, the supply side, new school models, tutoring, right, entrepreneurs coming in and so forth. The demand side, families getting comfortable with this option, with using the dollars to get whatever set of services they need for their students. I’d love maybe let’s start on the supply side and thinking about lessons of regulation and policy. And you can go either way, positive or negative. I guess I’m curious what you’ve learned that really facilitates a robust supply side. And then the flip side, what stymies it, what holds it back or gums it up? And as we think about what, what are the right set of policies and regs to really make these marketplaces flourish.

Education Market: Innovative ESAs

Jamie Rosenberg

So first, I would appreciate that what the education market is doing with school choice is in my opinion, leading-edge innovation. It really is. When you really look at the entire scope of government programs, very few ultimately get that dollar into the hands of that beneficiary, that citizen, and give them agency in the manner that ESAs are doing today. So first, just understand that it’s incredibly innovative. My view of the market in ESA implementation, the supply side and the demand side is I really slice it into three pieces. There’s the before, before the family gets that dollar and we call that awareness, activation and navigation. How can we get as many people aware of the program, help them navigate the complexity of the program to ultimately meet the demand that the program has? There’s $100 million, how do we give enough families activated to take advantage of the full program? The middle part is using the money and the third part is the data.

How did they use the money? And how can we quantify the impact? Your question is on supply. So there’s a lot more emphasis on marketing, a lot more emphasis on helping these families who come from diverse socioeconomic backgrounds, who may not speak English as a first language, who are for the most part taking agency for the very, very first time of their child’s education journey. And I am happy to elaborate on what we and other demands in the market are there, but that’s the dynamics of what sort of creates the demand for the program.

Michael Horn

Yeah, that makes sense. And I guess I’m curious if you want to go demand side first. Right. What really facilitates these families to be able to effectively exercise that agency? And where have you seen examples that maybe are hindering or creating more friction than needs to be done, if you will, given the policy set in place?

Jamie Rosenberg

Yes. So what’s creating more demand is marketing and grassroots efforts. Data will show that families really trust their places of faith and schools. And so we’re seeing a lot more investment in grassroots advocacy, coalescence and coalition among the non-public school communities and the organizations around them that support that ultimately can reach their families where they are. Okay. In addition, air coverage on top to create brand awareness. So I’ve heard of the ESA program three or four times now. I’m hearing it from my pastor or my rabbi, whoever it might be.

And I’m becoming engaged and educated. The second part is navigation. It’s complicated. The policy rules are complicated. So there’s a lot of emphasis on educating those grassroots channels to help those families navigate the complexities and ultimately make the leap. I’m going to apply, I’m going to submit my tax return if I have one. I’m going to submit my individual educator program, my IEP, if I can get access to it. Those are the dynamics that help them get and cross that line and those are sort of the players at a high level and that ultimately accomplish this sort of market demand that we all desire for.

Michael Horn

And are there policies in that space or regs that are creating more friction than is necessary in your view? Are there, are there certain states that are doing things that are great, that are actually making it easier to find that IEP and submit it and so forth to provide the evidence to get whatever dollar flows the family may be entitled to?

Jamie Rosenberg

My opinion is that the policies and the regulations definitely come in many, many different flavors.

Michael Horn

Yeah.

Jamie Rosenberg

I would say that the different flavors aren’t necessarily exacerbating friction. You know, at some point in time, if there’s some federated standard, would that ease friction? I think that would be a healthy debate to explore. I think the dynamics of the variation of policies do not necessarily supersede just the quantum leap of taking that decision for the very first time for this family, for this parent, single parent, or two parents in a home, going from a public education, more passive experience, I’m going to, you know, more or less. Sure, right.

Michael Horn

I live where I do and I go, yeah, yeah.

Overcoming Barriers to ESA Use

Jamie Rosenberg

And so if I had to emphasize, you know, what is the, you know, greatest area of friction that I would, you know, really invest in to try to overcome, it’s really creating that, that level of comfort for that family member to, to take that leap. And the variations and the complexities of policies are true, but I believe that they’re surmountable for the most part. And just to finish. For the most part, 70% of families are using the ESA money to send their kid to a private school. It’s not that complicated. Once you get beyond private school tuition, the types of tutors you’re allowed to use, the types of therapists you’re allowed to use, the types of educational goods you’re allowed to buy, that’s where you’re touching upon all those complexities. And I believe that complexity, that friction really happens in the use of funds, but not necessarily serving as a huge barrier to get them to apply for the program, if that makes sense.

Michael Horn

Yeah, no, that does make sense. Before we turn to some of those other providers and thinking about some supply side or the innovative space of what’s called today microschools, maybe it won’t be in the future. I’m curious what the role of ClassWallet is in terms of helping families feel more comfortable with the navigation feel that they have the ability to exercise that agency that they’re giving you. Like what’s. I assume it’s evolved over time that you’re probably rolling out different features or changing the look and feel of the product and so forth to help them feel more ability to find the right option for them and use those dollars. What’s that evolution look like?

Jamie Rosenberg

That’s a great question. It really comes down to data and relationships. So when a family first gets the funds, ClassWallet’s investing heavily in giving them access to data to make the best use of those dollars. Let’s say you have a second grade child who might have some reading deficiencies. What are other families with children with second grade of age who also might have reading challenges and what are they buying? Would be just one very simple example. Second, ClassWallet has relationships now and have integrated every major education e-tailer in the country. I mean 300 plus of the leading companies have all integrated from Amazon to Staples to Scholastic to School, Speciality, the Lakeshore and many, many, many more, all accept ClassWallet as a form of payment.

So we work very closely with them on how they can present their catalogs in a way that is an active, engaging experience with parents so that they’re finding items that are more and more closely correlated with their needs more easily than just simply an e-commerce experience. So it’s really about data, relationships and tailoring an experience for that family that they can most easily meet the unique needs of their child within that marketplace dynamic.

Michael Horn

It’s really cool to think about what that can look like then from the families navigating this and sort of taking away some of the breadth or complexity to help them find the thing that’s maybe most likely to be the fit for their kid. I’m curious on that supply side because you just talked about the integration with a lot of these suppliers and so forth. One of the pieces I’m curious about is the entrepreneur side of this supply side. Right. We’re seeing a lot of educators across the country leave their roles as public school teachers and so forth, saying, I can create a school. Right. That will better serve. And my understanding, in the early years of some of these places, I think, frankly, before you all were in some of these states, they were saying, like, hey, the dollars don’t flow to me right? Until six months later and I’m sitting out there trying to pay staff or whatever it might be.

There’s all these cash flow questions, friction around that and so forth. What have you learned about creating a robust supply side that supports entrepreneurs and innovative approaches as they come into this market to meet this new burgeoning demand? Or, or not new burgeoning demand, but burgeoning demand now backed by dollars?

Jamie Rosenberg

That’s a great question. So I’m going to break your question into two pieces. One, how do you ensure that those stakeholders, the needs of those stakeholders are met so they can actively participate in these programs? And then two, how do we support entrepreneurs? So, for example, there are many important stakeholders. So the schools themselves are incredibly important stakeholders. And so one lesson we learned is not only do they need to get paid quickly and effectively, but they need to get paid in a manner that reconciles with their accounts receivable systems.

Michael Horn

Sure.

Streamlined Payment System for Schools

Jamie Rosenberg

So when we, when we first started, we would ACH them, you know, one payment, you know, every day. We then learn from them that they need to reconcile that payment against 37 different students who each have unique student IDs against their bank accounts. So we altered our payment mechanism. So now every school gets a batch of 37 payments with student IDs so they can quickly reconcile against their accounting systems and their bank accounts. Two, we’ve invested heavily in payments, so we actually process payments every 30 minutes. So every school gets paid literally the next day on ClassWallet. So we’ve eliminated all cash flow and all reconciliation issues for one of the most important stakeholders in the ecosystem. Second, we’re the largest payment system to microschools in the country.

Okay. We have facilitated tens of millions of dollars to microschools. As an example of how ClassWallet has facilitated the ease, removed all the barriers and friction for the entrepreneurs in the space who are trying to meet needs on the edges of a traditional school environment, i.e. a traditional private school. So we work with all sorts of those types, whether it be microschools, learning pods, online curriculum that is also learning and tuition. And we have, I would say, facilitated probably well over $150 million of payments just to non traditional private schools, but tuition type programming for families.

Michael Horn

Wow. And as you think about that facilitation and so forth, I imagine, but maybe you’ll correct me, the states also have to like have a lot of trust, right, that you have verified the family is in fact eligible, the dollars can flow like there’s a whole bunch of trust or proof, I guess that as you’ve developed for the states that they’re saying, yeah, like, you know, ClassWallet is good to run with this. Just talk about that evolution of the process in working with the states to create that smoothness between demand and supply that you just characterized.

Jamie Rosenberg

Sure. So first, the state is the ultimate author of the policy. Right. So for example, a state might say the school must exist for two years, hypothetically. And ClassWallet then can implement that policy and, and in the workflow, capture the information from the school during the onboarding process to ensure that it meets the straight criteria, for example. One state might say microschools are okay. Another state might say microschools maybe are not okay, for example. So we have all the flexibility and all the scale to implement policies in a frictionless, highly efficient, scalable way. So once they establish the groundwork and the framework, ClassWallet then can hit the ground running and then execute.

And that’s been one of our core strengths and why we’ve been so successful.

Michael Horn

So you’re essentially taking whatever the policy’s regs are and basically hard coding it so you can quickly verify and you essentially are the agent, right, of verifying these suppliers as yes, you’re eligible to participate in this market. The state, after they’ve created the rules, is letting you run with that. Is that the right way to think about it?

Jamie Rosenberg

Right. And I think a better example of that, Michael, tutoring. And I’ll just give you the three different flavors of tutoring. And generally across ESAs, about 15% of all funding going to families is spent on tutoring.

Michael Horn

Okay.

Jamie Rosenberg

So one state might require a tutor, have a valid teacher certificate. Another state might require that the tutor have a valid bachelor’s degree. Another state might require that the tutor be a subject matter expert. Okay.

Michael Horn

Okay.

Jamie Rosenberg

So ClassWallet in state A will require that the tutor upload their teaching certificate and we will validate that it’s legitimate that it is current, we will monitor it, so if it ever expires, we will either deactivate that tutor or give them the opportunity to update it. In state B we will require that tutor to upload a bachelor’s degree, ensure that that’s valid, et cetera. So that’s what I mean, where the state sets the policy, and then we’ve got the efficiency, the scalability and the workflow to onboard. So, you know, in one state, for example, we onboarded 3,000 tutors across the country across that particular state to meet that particular program’s needs.

Empowering End Users with ESAs

Michael Horn

Gotcha. Okay, last question as we wrap up here. You talked about one of the big philosophies that you’ve had, you developed is getting the dollar as close as you can to the actual end user and really giving them the agency over it. As you know, one of the, I don’t know if it’s pushbacks, but concerns maybe from critics of ESAs has been, what if they spend it on stuff that doesn’t make sense for their kid? Right. And so forth. How have you thought about those questions? How have you helped reassure states around those worries that they might have and that you have the right protections in place and so forth? How have you thought about that conversation? That I think comes from a different philosophical point of view, from where you’re entering into it, but you are obviously bridging it all the time.

So I’d love to hear how you, how you talk about that.

Jamie Rosenberg

I mean, that is our core competency and that, that is our innovation. The digital wallet ensures that the funds get used according to the rules. And what is the ultimate balance is among the policymakers is how to provide maximum agency and impact, but also ensure there’s transparency and compliance. I mean, that’s the ultimate, ultimate tug. And what I’ll say is this. For the most part, there’s been very little fraud. You’re always going to have a bad apple or two. What happens is the families are trying to do the right thing, but may inadvertently purchase something that’s not within the framework and the rules.

I’m going to give you a very specific example.

Michael Horn

Okay, great.

Jamie Rosenberg

A family buys a laptop. That’s according to the rules.

Michael Horn

Right.

Jamie Rosenberg

They buy a second laptop, fourteen months later, the rule says you’re not allowed to buy a laptop more than once every 24 months.

Michael Horn

Okay. Okay.

Jamie Rosenberg

So oftentimes, and I would say it’s about between 20 to 23%, it’s not fraud. They’re not trying to commit fraud. They’re trying to do the right thing. But because the policy and the rules can be complicated just like that slight nuance, they buy something that is just not according to the rules.

Michael Horn

Okay.

Jamie Rosenberg

So that’s what ClassWallet does. We take a complex rule set, something as basic as you’re allowed to buy a laptop, but you can’t do it every 24 months. And also something is very black and white. You can’t buy liquor.

Michael Horn

Right, right.

Jamie Rosenberg

And everything in between. And we try to help the parent be able to check out with confidence so when they check out, they know, and we can provide them information and data at that point of checkout, knowing that what they’re buying is not only compliant, but also within the rules, so they don’t have to wait for some retroactive reaction. So holistically, it’s been our experience and we’ve processed 1.6 million ESA transactions, we’ve processed close to $3.6 billion of ESA funding since 2017 over the last eight years. And I would just repeat that, for the most part, there’s very little fraud happening beyond what you would intuitively think is the bad apple events happening. But it’s families trying to do the right thing against a complex rule set in which, you know, technology is constantly getting better to help them solve if that makes sense.

Michael Horn

Yeah, it makes total sense. And I lied because it brings up one last question, I think, I promise on this one, which is, it seems to me you have gained a ton of experience around what that rule set can look like for a state and to advise and guide new states coming into the ESA world about, hey, like these are the big decisions you’re going to face. Let us help you do this and get it up and running quickly. What, what’s your role in those conversations and what have you learned about that?

Jamie Rosenberg

That’s a great question. I mean, we very much view ourselves as, as a thought partner and not just a software provider. Yeah. And you have to remember these agencies are doing it for the very, very first time. Like what I said in the beginning of the interview, this is bleeding edge innovative stuff. And often these agencies have no experience doing anything like this in this type of manner. So we can help them think through all the what if scenarios. You know, I always use one example.

Navigating Nuances for Public Good

Jamie Rosenberg

Or, you know, sneakers might be allowed. Clothing is allowed. Is that Converse sneakers for $60 or is it Michael Air Jordans for $800? Right. Even the little basic things that you think, of course, would be easy all have various nuances of color. So because we have seen so many different flavors in so many different transactions, we do come in as a thought partner and help them think through all those scenarios and ultimately help them avoid unforced errors. I and everyone we’ve worked with have always seen that everyone is trying to do the right thing. We all align to the same mission is to help children maximize their opportunities and chances of success and we very much enjoy and take a great deal of pleasure in helping agency leaders fulfill their mission which is public good.

We believe in that and so we enjoy that aspect of the work we do.

Michael Horn

Amazing. Jamie, huge thanks for joining us. Huge thanks for the work you continue to do and ClassWallet continues to do enabling what I agree with you dollars following to the point where they’re actually spending and educating kids. So really appreciate all that you’re doing.

Jamie Rosenberg

I appreciate the opportunity. Michael, thank you so much.

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