Also, the students authenticate and register themselves using Google Apps SSO. They also self-enroll and there are no groups in any courses.
Don't know if this helps but wanted to put it out there.
Thanks again to anybody who can point in a direction to debug this. I have run out of all options.
I might upgrade the staging site to the v3.2.5 and see if that resolve the issue in the mean time. I checked the logs for 3.2.5 but nothing mentioned about this behavior.