Excellent posts Maintain and every single school has attrition and it can happen for a number of reasons as Maintain cites. Part Timers are the mostly likely to drop out for non-academic reasons as they simply do not have time to complete law school.
One thing is certain though no school wants their students to fail out removing paying tuition paying students and reporting attrition to LSAC is not something any law school wants to do, but at the end of the day it is up to the individual student to do what is necessary to succeed, and if schools are taking money and time from someone that they honestly believe is not capable of passing the bar it is unethical and potentially illegal.
Similar to the case in Contracts many students read where the dance instructor kept taking money from a 70 year woman who the instructor convinced woudl be a professional dancer if she kept taking lessons. Here is a summary of the case http://www.casebriefs.com/blog/law/contracts/contracts-keyed-to-knapp/avoiding-enforcement-incapacity-bargaining-misconduct-unconscionability-and-public-policy/syester-v-banta/
Law school is no different if someone is incapable of getting passing grades on 1L exams where you have multiple days to review one subject and you know exactly what will be on the exam then there is no way you will be capable of handling the bar exam.