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What Went Wrong at the Upstart School Milken Backed?

K12 Inc. (LRN) was heralded as the next revolution in schooling. Billionaire Michael Milken backed it, and former Florida governor Jeb Bush praised it. Now the online education pioneer is failing to live up to its promise. Plagued by subpar test scores, the largest operator of online public schools in the U.S. has lost management contracts or been threatened with school shutdowns in five states this year.

The National Collegiate Athletic Association ruled in April that students can no longer count credits from 24 K12 high schools toward athletic scholarships. While the company says its investments in academic quality are starting to pay off, once-soaring enrollment at the more than 60 public schools it manages has dropped almost 5 percent. Targeted by short sellers, who benefit from a company’s decline, K12 shares have tumbled by two-thirds since reaching a near-record high in September 2013.