Ahh I posted without seeing your responses. I don't know that I would battle over a level or two. My dd was testing over a year below what we saw at home. It was a huge contrast for her. Sounds like you already know they may be capping the levels. If that is the standard practice at the school it would be an epic battle to change it.

It is demoralizing for them. My dd was so sad and bored last year.