Victoria's Commissioner for Children and Young People Liana Buchanan declared the finding while calling for greater attention to be paid to the education of the state's most vulnerable children in an inquiry tabled in parliament on Thursday.
The inquiry highlights major concerns about racism against Indigenous students, a lack of support for those in residential care and low education outcomes for all young people involved with the system.
There's been a 13 per cent jump in the number of children and young people entering care since 2019 overall and a 21 per cent increase for Indigenous children, described as an "unacceptable" over-representation.
Students in care were absent far more than the general population, received lower NAPLAN scores, were five times more likely to be expelled and just one quarter of those in ten year 10 made it to their final year of school.
There are "particularly alarming" outcomes for students living in residential care, with 79 per cent chronically absent from school last year, double the rate of those in foster care.
One teacher said they had begged for students not to be put into residential care.
"You almost couldn't design a better system to disengage kids from education, to force them into arms of pedophiles, into criminality, into drugs," they wrote.
The inquiry heard racism against Indigenous students started in early childhood and one third do not have a cultural support plan, meaning their connection to community is under threat.
"A lot of kids don't have an understanding of their culture in out-of-home care," a Koori Engagement Support Officer wrote.
"I can remember we were asking kids who their mob is and one of them said my mob is DHS (Department of Human Services)."
Commissioner for Aboriginal Children and Young People Meena Singh said the situation was getting worse and the report showed racism continues to occur in schools.
"We saw a continuation of the exclusion from education that began with colonisation, and concerningly, unacceptably, this continues today," Ms Singh said.
The inquiry also heard students' right to an education was not prioritised in the strained child protection system, partly due to a "crisis-driven focus" exacerbated by a high staff turnover and time pressures.
It said the Victorian Government had made significant investment into the building the child protection workforce but that has not translated into substantial change.
One unnamed principal described carers having to deal with excessive bureaucracy as "like headbutting a brick wall".
Ms Buchanan said the inquiry revealed disparities "as stark as they are shameful".
"Children and young people in the care system, who have had to navigate serious adversity and trauma in their young lives, are too often disenfranchised from mainstream education, especially in schools," she wrote.
Some 47 recommendations for reform included adequately funding for services aimed at improving education outcomes, better support for children transitioning from early learning and beyond, greater transparency over decision making and oversight of policies guiding inclusion.
The Victorian Government has been contacted for comment.
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