Sharon at Real Life Deals has a great post about organizing your kid's school lives. They all bring home so much stuff! She's organized all her kids' school stuff in huge 3-ring binders. Sharon says she goes through every year and thins it out some more.
I have to admit – I use a similar method for my paperwork! Mine isn't schoolwork so much, but things that I may need or want to access again. Like awards, things I'm particularly proud of, articles I like to show people, etc.