Universities have incentives not to expel cheaters, because these students would stop paying fees. By extension, there is a motive to avoid punishing academic dishonesty in any way that increases the chance of the student dropping out, like giving a cheater a failing grade. The university then gives a similar incentive not to punish academic dishonesty to its departments, who then pass on these incentives to faculty. In every university I have been in, it is far easier for a faculty member to do nothing about cheating – it requires no work, as opposed to a lot of bureaucracy documenting the cheating, imposing the punishment, dealing with the appeals, etc. There is no punishment for a faculty member who fails to report cheating, but to be fair, also no punishment for a false accusation of cheating, or an accusation that does not have sufficient evidence or gets overturned on appeal.

Even if a faculty member tries to punish academic dishonesty, the cheating student appeals to the university hierarchy and the higher-ups overturn the punishment. If not the first level of the hierarchy, then one of the higher levels. Thus even an inherently honest professor who for psychological reasons would be willing to spend the time to document academic dishonesty if it led to the cheater getting punished does not do so, because in the end there is no punishment.

A solution is to change university incentives: the students who are expelled because of cheating must pay their fees in full for their entire course of studies. A problem is that this leads to legal challenges because the student is not getting the education service but must pay for it. One solution is to require the tuition paid up front, non-refundable on expulsion for cheating. However, in this case students have to take a loan (which may be prevented by credit constraints or risk aversion) and may instead choose universities that do not charge them up front.

The university-side incentives also seem problematic if tuition is fully paid for expelled cheaters, because the university could save on the teaching costs by kicking out all the students on fabricated charges and keep the money. The long-term reputation cost for the university prevents such rip-offs.

A milder way to improve the university incentives is to require the cheater to re-take the course. This may delay the time at which the cheater can take follow-up courses that have the re-taken course as a prerequisite. The resulting delay in graduation may require the cheater to pay extra fees for the additional time, but the extra payment of course depends on the specific regulations of the university.