On the Additional Information tab, the term "graduating students" refers to students graduating out of the school system, not students graduating from one school to another within the database.

Additional Information tab

For example, if your organization has a Lower School, Middle School, and Upper School, only the Upper School promotion schedule appears in the Process graduating students using promotion schedule field on the Additional Information tab.

You can confirm that students automatically move from one school to another in your database by viewing the promotion schedule record. If the Graduates go to checkbox is marked, then students automatically "graduate" from that school to the one selected in the adjacent field.
 

If the Graduates go to checkbox

For more information, refer to the End of Year Processing section of the Administration Guide (PDF)