‘Learning Recession’: New Report Shows Below-Average Test Scores in Majority of U.S. States

The Education Scorecard finds that most U.S. states still have below-average reading and math test scores, with 1 in 3 districts now a full grade level behind 2015 reading levels. Research points to a U-shaped recovery after COVID-19, with the lowest- and highest-income districts improving faster than middle-income districts, while math has rebounded but reading remains weak. Massachusetts leads in current average scores, while Nebraska, Wisconsin, South Dakota and Minnesota posted the largest declines from 2019 to 2025.

Analysis

The key market implication is not “education is weak,” but that the labor-force productivity pipeline is degrading in a way that shows up with a lag of 5-10 years. Persistent reading underperformance is especially bearish for service-sector productivity, clerical/managerial job quality, and regional wage growth in states where human capital accumulation is slipping fastest; that tends to widen the gap between high-skill hubs and the rest of the country. The U-shaped recovery also suggests stimulus efficacy is asymmetric: money helps the bottom end, but the middle is where marginal returns have been weakest, which is where many consumer and local-services businesses are most exposed.

Second-order winners are vendors tied to remediation, curriculum, testing, tutoring, and workforce upskilling, while losers are firms relying on broad-based future labor quality in lower-performing states. The “science of reading” adoption trend matters because it implies a multi-year procurement cycle for new materials, teacher training, and assessment platforms; once districts standardize on a methodology, switching costs rise and renewal rates tend to improve. That creates a more durable revenue stream than one-off grant-driven spending, but only if budgets don’t revert when federal relief fades.

The main risk is that investors overestimate the speed of academic repair: reading improvement typically takes multiple cohorts, so the 2025 inflection is likely the first leg of a 3-5 year process, not a full normalization. A reversal would require either sustained fiscal support at the district level or a step-change in district execution; absent that, the middle-income cohort remains the weakest link. Contrarian angle: the headline is mildly bearish for education outcomes but potentially bullish for ed-tech and vocational training businesses because the market may be underpricing the need for structural remediation rather than treating this as a temporary post-COVID reset.

Key Decisions for Investors

• Long shares in HMH or NWE on any pullback over the next 1-3 months; the thesis is multi-year curriculum adoption and assessment renewals, with downside limited by recurring school-district spend and upside from a broad literacy-cycle upgrade.
• Pair trade: long LXRX? Actually no direct fit; instead long PLD? No. Better: long CEG? Not relevant. Use direct education beneficiaries: long COUR / long DUOL on 6-12 month horizon if valuation allows, as persistent remediation demand supports enrollment and monetization; risk is budget cyclicality and slower district procurement.
• Use a basket trade: long EdTech/remediation exposure (CHGG only if restructuring catalyst visible; otherwise prefer GLOB/DUOL/COUR) versus short broad consumer discretionary names with heavy exposure to middle-income households over 12 months, because the middle cohort is the clear relative loser in the data.
• For a lower-risk expression, buy out-of-the-money calls on DUOL or COUR 9-12 months out, financed by selling nearer-dated calls; thesis is that the market is underpricing the longevity of literacy and upskilling demand.
• Avoid making long-duration bets on regional banks concentrated in the weakest states for now; the negative schooling trend is a slow-burn credit quality headwind, so underweight lenders with high exposure to NM/WV/OK/DE-style geographies over the next 2-3 years.