A.S.
Yarn is a perfect idea for the tassel and string on the hat. You can glue it on the hat and then put a flat button over it. I like red or gold for the tassel with purple paper. One of my best memories of kindergarten graduation (yup - still remember it) was that my teacher had taken books (the little Golden Books) and wrapped the paper around them for the flat part of the hat like a gift then after graduation we all opened them and there was a book signed by our teachers. I still have the book - you can pick them up at a Half Price Books even. What about certificates or "diplomas" rolled into scolls and tied with the same ribbon. That way you can call their names and they could walk across to get a diploma. See if local kid friendly place has coupons you can give out inside the diploma - Chuck E Cheese, etc.
Have Fun!