This article synthesizes findings regarding the development of competence and learned helplessness and factors influencing persistence and intrinsic motivation, suggests the process through which small differences in early achievement are magnified by the current structure of schools, and reviews evidence suggesting that the characteristics of a specific type of individualized instruction and assessment system may be especially suited to remediate these differences. Age-graded schools and group tests label students as "below" and "above" average, inadvertently demoralizing below-average students, depressing effort and achievement, and perpetuating the gap in achievement between poor students and their more affluent peers. Analysis of the research literature suggests that the psychological experience of school for both high and low achieving students may be altered through a structure where instruction is individualized, students are challenged at their own levels, and each student receives objective assessment information confirming that he or she is successfully advancing to higher levels. (Contains 2 notes.)