Extensive testing data from federal, state, and private sources indicate that Indiana students underperform their peers in most other states. Contrary to conventional wisdom, the shortcomings of Indiana students relative to students elsewhere are most severe among students from middle- and upper-income families. Forty percent of 3rd-graders, 52 percent of 6th graders, 44 percent of 8th graders, and 43 percent of 10th graders failed to demonstrate mastery of the Indiana Statewide Testing for Education Progress in 1999. Fifteen states and the District of Columbia have a higher percentage of students who take the SAT, yet only five states score lower than Indiana. The data are similar for the ACT. Thirty states have a higher percentage of students who take the test, but only 13 of them have lower average scores. Indiana ranks 49th in the nation on the Advanced Placement exams. The report concludes Indiana's artificial school-district boundaries have a negative impact on education decisions and perceptions in the state. The study examines the wide range of "inputs" to determine whether external factors explain the poor performance of many students. The report finds no single external factor--class size, level of teacher salary or experience, geographic location, etc.--that adequately explains school and student performance variations. The problems are inside the state's current public education system. Contains 33 references. (DFR)