The The Umbrella Academy season 2 finale could just reveal the answer to this question.
The Umbrella Academy season 2 saw the Hargreeves children using time travel to try and prevent the apocalypse. Eventually, they succeeded and returned to 2019, only to see that Reginald was still alive. In this timeline, he formed The Sparrow Academy with five other completely different children, a strange cube, and also Ben Hargreeves — who had died while on a mission with The Umbrella Academy many years ago.
The Umbrella Academy season 3 will no doubt explore the Sparrow Academy further, which could give the audience insight into Reginald's selection process for the two different superhero teams. Consequently, this may clear up what happened to the other children and why Reginald only adopted seven of the 43 children. Interestingly, this season will also most probably look to explain what happened to the original The Umbrella Academy themselves in this universe and where they all ended up, further contributing to the answer to this intriguing question.
There have been many theories about what might have happened to the other children in The Umbrella Academy. Many may have just decided to live their lives quietly and stay out of the limelight, however unlikely that is, while it has already been implied that a few of the 36 have probably died. Also as previously mentioned, they could have formed their own team or their own academy, like The Sparrow Academy. The potential of an evil version of The Umbrella Academy with some of the 36 children in it is certainly not out of the question. Regardless, there are definitely different avenues the writers can go down.
The Umbrella Academy has several questions to answer in season 3, like how Reginald is back and who The Sparrow Academy is, but the fate of the other children born on the same day will be a key one that should finally be answered. With five totally new children selected as part of The Sparrow Academy, there will have to be an explanation that should reveal exactly what happened to the rest of the children, including The Umbrella Academy themselves in this timeline. Whatever the answer is, it is sure to have a large effect on the whole show and potentially create more problems for the of The Umbrella Academy in season 3.