In its Tuesday ruling, the Sixth Circuit Court of Appeals in Cincinnati, Ohio, said there was a difference between the persecution of a group and prosecution of violators of a law that is applied across the board - in this case, Germany's rule on mandatory schooling.
News agency AP reported that the family is planning to fight the decision.
"Regrettably for the Romeikes they have not shown that Germany's enforcement of its general school attendance law amounts to persecution against them, whether on grounds of religion or membership in a recognised social group," the judge's opinion read.
An immigration judge in the state of Tennessee initially ruled in 2010 that parents Uwe and Hannelore Romeike, and their five children, were free to remain in the United States, where they had been living for the past five years.
But the US government successfully appealed the decision two years later, and on Tuesday the Cincinnati court upheld that ruling.
The Romeikes, originally from Baden-Württemberg, said they decided to homeschool their children because public schools were teaching children to adopt an "anti-Christian worldview," AP said.
The German school curriculum was "more about vampires and witches than it is about God," Uwe Romeike was quoted as saying.
Those who do not comply with Germany's compulsory school rules face fines and jail time. By the time the Romeikes left for the United States in 2008, they owed the German government €7,000.
The Home School Legal Defense Association, which represented the Romeikes in court, said Germany's policy on homeschooling is tantamount to persecution, and called Tuesday's ruling "inexplicable".
“We believe the Sixth Circuit is wrong and we will appeal their decision. America has room for this family and we will do everything we can to help them," HSLDA founder Michael Farris said in a statement on the organisation's website.