I have heard of this, and I'm glad you are asking, as the students who are "cutting" and acting out in other self-mutilating ways do need some attention...by a helpful adult.
Here is what I found about self-injury, from the Academy of American Child & Adolescent Psychiatry (http://aacap.org):
"Self-injury is the act of deliberately destroying body tissue, at times to change a way the person is feeling. Some forms may include:
* picking, and pulling skin and hair
* head banging
* excessive body piercing
Some adolescents may self-mutilate to take risks, rebel, reject their parents' values, state their individuality or merely be accepted. Others, however, may injure themselves out of desperation or anger to seek attention, to show their hopelessness and worthlessness, or because they have suicidal thoughts. These children may suffer from serious psychiatric problems".
Since we are talking about a a situation in the past, no need to revisit "what should have been done", but if anyone is encountering this presently, it is a good idea to talk with a school counselor or trusted teacher about what you are seeing. As stated above, it could be a wide variety of reasons, and if you are friends with the person, you could ask them simply "why are you cutting?" They may say that it feels good or go into other explanation, and having a few resources handy can help them.
Has anyone else experienced cutting either themselves or through a friend?