Is Progress and Skill In Martial Arts Up To The Teacher or The Student?

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Recently I had a discussion with a couple of black belts I know. We were talking about rank, teachers and students. One black belt feels that as long as students memorize the required material, they should be promoted. He feels that developing skill, speed and strength is up to the student. His thought was that he can only teach the material and help to encourage the student, but that it was up to the student to push him or her self and become good. Some students are only in the martial arts for fitness or fun, so it is not that important to them, while others will meet the challenge and become good. The other instructor believes that a student has to meet a certain level of skill to be promoted. If their technique isn't good enough, or if their attendance or effort level is not up to par, they will not be promoted. He believes that rank is something to be earned. If a student does not push themselves to reach the level of skill he deems appropriate for each belt level, then it is their fault they can not pass their test. He says he will not water down his organization to indulge less than dedicated students. What are your thoughts? Is it better to keep a student motivated and involved, even if it means lowering rank standards? Is it better to maintain rank standards even if it means students might quit or get frustrated? What does either choice mean for the style as a whole, or for a school owner's bottom line?