Student report cards re-enforce negative aspects of learning. There seems only one way to get a good mark, through testing or a teachers opinion.
give the students a ranking and then to move from one level to the next they would have various ways of levelling-up not just a test. Extra course work, different methods of assessment.
Lets say a student gets caught plagiarising, rather than fail them and warn them not to do it again, they could take an academic skills class and gain some of the marks for the assessment back. Positive reinforcement, not hitting them with a stick. That’s how games work.