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As you kind of mentioned here, the thing about lowering the standards of education is that it's a spiral that just keeps getting more and more downward pressure. Not holding kids back is such a disservice to those kids in their future. We do the same here in Canada, it's very hard to fail a student. I think holding a kid back a grade earlier would actually be better than just punting them forward when they're not prepared already. One repeat is usually all it takes if you do it early in their school career.
RE: Functionally Illiterate