This happened to one sim I was playing, Bastien. He was in a group of students so I wasn't playing him on his own. He was on the soccer/football team but while the others would pass, he kept bombing the grades in his classes despite doing the work. Each semester he fell further behind. Finally he went on academic probation and then did not achieve the necessary grades to continue. Rather than re-enroll, I concluded that it was time for him to join the workforce. He was from a wealthy family with a father in business who wasn't that happy about the continued failures.
That's not the norm, sims usually have great grades or might hit a bump but recover. He actually failed out. On the other hand, he stayed in shape but I think Daddy got him a start in the mailroom.
