Seventh-grader Marcy Thompson cried when she heard that a court had ordered the state to stop funding the virtual school she has attended for the last five years.

The ruling, the first of its kind in the U.S., placed the Wisconsin Virtual Academy at the center of a national policy debate after critics raised a key question: Do virtual schools amount to little more than home schooling at taxpayer expense?

School districts across the country are closely watching the case, which could force the academy to close and help determine the future of online education.

"It's a great education option for lots and...

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