We had this situation at the beginning of the year with Minis. Beast 1 or struggling 2? We decided on one. Some of the girls were disappointed because they had worked hard to get back handsprings and were sad they weren't going to be able to do them. But I know those same kids are gonna cry when their level 2 team got last place. It sounds like this team needs 3 things:
1.) A reality check. Senior 3 is a super competitive division. It's no longer acceptable to do a one leg straight cradle and call it a day. It's hard stuff. Half ups, 360 to prep, power press... The list goes on. Not to mention that there's virtually no tumbling. Here's what I would tell my kids: "Do you want to lose? Because if you are ready to walk out there and get killed, let's be a level 3. If you want to be competitive and have a shot at titles, then we're going level 2" (Note: this is not actually a poll, never poll the public.) Tell them to go watch some videos of a really great senior 3 team and really evaluate how their team compares.
2.) A fire lit under their butts. Make being a level 3 (or a 4.2) a goal. Make a list with a personal tumbling goal for each child. Each practice go through the list and check up on them to see if they have it yet or ask how it's coming. Knowing that they have to talk to you about it every practice will make them want to get it and be accountable. A little shame works some times. Make positive examples out of those who do practice hard and come to tumbling class by rewarding them with valued positions. "Girls, Katie got point for jumps because she's been in this gym working her butt off to get a beautiful BHS." A little competition also goes a long way.
3.) Some confidence. You need to reassure this team that being a level 2 is nothing to be ashamed some, especially if they are really good. Tell them that because they're seniors they really have the opportunity to do the hardest level 2 stunts they can. Make sure that the rest of their routine is very fast paced and flashy just like the Senior 5. They'll be glad you did it when they win.