Schools, esp. private schools, expend a lot of effort to keep students enrolled (since that's how they make money). Still, my school loses maybe 10% or so over four years, and I think much more in the (now) six year pharmacy department.
The euphemism here for failing out is 進路変更, tho sometimes it's an "economic problem" (parents want to stop wasting money), or the comparable "family issue". Sometimes students 'take a break' (休学), and leave for a year, and, with a wink and a nod, most everyone knows they won't be back.
Students who do not get enough credits, who do not make normal progress, have another year to catch up. If they don't, they're out. We just went thru the big list of everyone at the last faculty meeting--for 1st thru 3rd yr it's to decide if they are allowed to go on to the next year, or if they have to repeat a year. And for the 4th year, there are some who, in spite of best efforts, are not allowed to graduate (the pool is usually pretty well winnowed out by then).
My school grades S, A, B, C, F (100-90, 89-80, 79-70, 69-60, and 0). If by my calculations, a student's actual point score is 58, or 49, or 32, I am obliged to record/enter their grade as a zero (and that's all the system sees, not those other failing numbers).
Besides not doing the work, another way to blow it is to not come to class. The general rule is that if you miss 1/3 of the classes (even if you offer to make up the work), I give you 受験停止, which I submit on a separate paper about two weeks before the exam. If you're tagged with this, you are not allowed to take the exam, and bingo, you are automatically out--no chance at all for credit. Do the course again the following year, or, if it's your second time around, then bye-bye for good.
Of course if your major is something like pharmacy, which has a rather difficult national licensing exam, you'd be worried about passing that rather than the grades you might be getting. Fail that a second time (and lots do) and it's 進路変更 time, or your parents will realize the futility of their investment, etc.
For one set of language classes (which I control) the exams are achievement tests--we lay out very clearly thru the terms what students need to know and then specifically test that. For another set (which I don't control) students take a competency test (on par with something like TOEIC) which becomes a large part of their final grade.
Blah, blah, blah..., as of the last few weeks, all of this is behind me forever. My only challenge these days is to move everything out of my office of almost 30 years (official retirement is the 31st), and no, I'm not going to piddle around with part time classes anywhere.