Grade retention and inequalities that derive from grade retention can influence student school trajectories and careers. Grade retention can discourage students from education, and increase school failure and dropout. This study explored the relationship between grade retention and student intentions to enrol in higher education. We also studied the role of school identification and behavioural engagement in this relationship. The analysis is based on a sample of 1,089 students (grades 6 to 10) from Portugal, one of the European countries with the highest rates of grade retention. We employed multilevel probit regression modelling with random intercept and fixed slopes to explore both the individual and school level effects of grade retention. The analyses showed that retained students had a lower probability of intent to enrol in higher education and that there was a contextual effect of the number of retained students in the school, on students' probability of intent to enrol in higher education. This association was partially explained at the individual level by students' school identification. Retained students presented lower levels of school identification, which in turn results in lower probabilities of enrolling in higher education. Student behavioural engagement was not associated with grade retention nor student intentions. Our findings suggest the need for interventions that foster students' school identification to overcome the adverse effects of grade retention.