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None of the students were expelled so why should they lose their housing?
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Because (I'm certain) they broke their lease. If a landlord has to evict you because you're committing illegal activity on the property, he has no obligation to rent you a different room in one of his other buildings. You've shown yourself to be a troublesome tenant; you forfeit your deposit and his obligation is over.
Now, is it wise for the school to do this? Maybe and maybe not; it's certainly detrimental to the students' education for them to be sharing a couch all semester. On the other hand, the school wants more than anything to avoid headaches, and it is entitled to be wary about renting space to these kids again so soon after it had to evict them.