Everything you say is certainly true, but there is no scriptural authority for it. This was my original point. The school is certainly welcome to do as it pleases, but to claim scriptural or even scripturally supported moral authority for their actions is dishonest. There is no support in Christ's message for the passive evangelism you suggest. I expect Jesus would have handled it differently.
Sure there is.
1 Thessalonians 5:22 "Abstain from all appearance of evil."
The school may feel that, by allowing children of parents who violate the 'morals clause' of the schooling agreement to keep attending, the appearance of condoning such behavior may be perceived.
Whether you agree with that view or not is another story. But obviously, these rules are in place for a reason. They have probably experienced repercussions in the past for allowing a child to stay whose parents had violated the 'morals clause'. Or it may even have occurred before the morals clause was in the agreement and that's why it was added.