The focus on NCAA penalties hits only on the tip of the iceberg when examining the gravity of the repercussions of Penn State's abject failures. It's fairly uncertain whether the NCAA has the jurisdiction to lay the "death penalty" on PSU. If it could, it would not be beyond reason to do so as the crimes and penalty match. However, that's just athletics - even though PSU's world revolves around football like the golden calf.
Federal law has a more harsh penalty - loss of all federally funded financial aid to the student body. The Clery Act, which was put into law in the 1990s, require all institutions of hire education, as a condition to receiving federal tuition assistance, to compile information and disclose reports of certain crimes to university security or local police, irrespective of convictions. Sexual assaults are squarely within the Act.
Congress, in so passing legislation, expressed that the purpose of the Act is to enable "students and employees of institutions of higher education should be aware of the incidence of crime on campus and policies and procedures to prevent crime or to report occurrences of crime."
The federal government generally does not have law enforcement authority over local crimes. To get around that, they can impose affirmative obligations onto entities that accept federal money for their own benefit. Each application requires the university to certify compliance with the Clery Act. In short, burying reports of sexual abuse of children and not disclosing it would be grounds for termination, suspension, or restriction of federal tuition assistance.
There is no greater example of the necessity and value of the Clery Act than PSU's situation. The Act promotes transparency and openness to prevent further crimes from being committed, or allow the public to make a concerted choice about either enrolling in a university or otherwise supporting it. The Freeh report confirms what was common sense - PSU lived in football obsessed environment where Joe Pa and the football program were not answerable or transparent to anyone. Due to these attitudes, more kids were abused and victimized. Had Penn State complied with the Clery Act, at least five more kids would have avoided Sandusky's crimes. But, alas, Joe Pa and crew were more concerned with vanity and football.
The likelihood that the federal government pulls the rug from federal financial aid is extremely slim. Conversely, PSU did raise 200+ million this year and could direct most of that money to student aid instead of to other athletic programs. Even though this is the most blatant context of where the Clery Act remedies are relevant and necessary, academics (which absolutely had nothing to do with PSU's culture of complicity) would be hurt. Emotionally, I think PSU deserves to be shut down because they let the students down. Rationally, I do have some sympathies for students in general - just not for athletic programs.
The threat of suspension, however, remains a powerful tool. There are a lot of prominent examples of where the feds used the power to shut down an institutions but instead entered into consent decrees that essentially put the institution on lock down. Labor union trusteeships with histories of mob influence are prominent examples. Incidentally, a prominent member of Louis Freeh's law firm, Blake Coppotelli, is one of the foremost figures in the enforcement of labor union corruption remediation programs.
Ideally, what I would foresee and hope is that PSU is placed under a trusteeship managed by an independent third party. The rationale is that PSU needs a complete culture change. The current trustees are just cowards or mouthpieces of the same old "Penn State Way". As pointed out by Freeh, the athletics component of PSU has far too much influence over the rest of the school's affairs - from boosters, general administrators, local government, law enforcement, and finances. Although unions are generally useful and designed for a good purpose, the mob's influence was so pervasive that the primary objective was hostage to corrupt goals. PSU is the same way - athletics should be isolated from academics and general university policies so that it may no longer have the power and authority to taint or influence over legitimate and necessary university functions.
Alternative or in addition to a trusteeship, the Clery Act's framework does enable an alternative way of enforcement without ceasing (or a threat thereof) the funding of student aid. As mentioned, PSU must certify that it has complied with the Clery Act in order to receive aid. Indeed, as the Freeh report confirmed, PSU has knowingly submitted false information in exchange for federal funds - which leads to claims and charges under the federal False Claims Act. In other words, the failure to comply and, in turn, false certify constitutes fraud upon the government. Instead of withholding funding, the feds can opt to sue PSU for boatloads of cash (in addition to the civil liability from the victims) for past payments.
In any event, if the feds end up serious, the ultimate goal should be culture remediation. They are defiant as any institution. There are powerful remedies to be sought, more so than the NCAA can impose. All of these discussions could have been mooted if the Penn State, even as early as March 2011 when Ganim's story broke, acted quickly upon notice. However, even with the Freeh report, Penn State still wants to exist in its bubble. The Feds have the clearest jurisdiction and the best tools to enact change. There isn't a better test case for the exercise of their full authority.