The present article contributes to research on extended education and inequality in educational attainment in two ways: First, we draw on insights from two competing theoretical strands of argumentation from social stratification and mobility research to better explain the role of ‘shadow education’ (SE) for educational success in a highly stratified education system. Second, we empirically examine the effects of SE on the transitions to upper secondary and tertiary education using data from the German National Education Panel Study (NEPS). In doing so, we provide a first empirical study on the impact of SE on school allocation in this country. Contrasting to international results, our findings show that SE in Germany is primarily used by low performing students who seek to complete their school degrees before leaving the education system—independent of their socioeconomic status (SES). Effects of SE on upper secondary school and university transition are generally negative and more pronounced among more selective institutions. Our analyses further confirm the higher likelihood of high SES students to achieve higher vertical and horizontal educational outcomes, but cannot confirm any role of SE for success in the allocation process. In conclusion, our results support a social mobility perspective, indicating that low SES strata are equally likely to achieve their (relatively higher) educational goals through SE, but do not advance to educational tracks with the highest expectable returns.