If you are receiving this error, this may be happening because the Alumni role is not active. In order to graduate students, this role will need to be activated.
To activate the alumni role, navigate to:
  1. Core > Users > Edit User Profile Data
  2. Manage Roles
  3. Alumni
  4. Edit
  5. Mark the Active checkbox
  6. Save & Exit
You can then go back to Manage Student Enrollments and successfully graduate the students.