It is my understanding that all are eligible in D3. If my assumption is correct what happens if their grades fall below 2.0. Do they become ineligible for the next season?

During recruiting, ineligible only counts for D2 and D1. Once he's on your D3 team he plays. IF he falls below 2.0 at the end of a term he becomes ineligible until he passes a term with a 2.0 or above. MIDTERMS are to alert you to his grades either being passing or in danger of failing. Players ALWAYS start the next season eligible, regardless of last season's grades.

thanks for clearing that up