Privileged? Ha. What a odd way of putting it. In what way is going to school a privilege? It's almost expected for everyone to go to a college/university nowadays.You're right, but what I meant is that, in terms of recourse and tolerance of misbehavior, college students are privileged in a way they won't be in 10 years. Here's a case of clear wrongdoing by the students (if they can be called that) in which the wrongdoers hold the cards. You're simply not going to see that in any workplace. Give most people 12 months in a real-world work environment, and they'll see people getting fired for a lot less than that.
If you get caught cheating in a class, fail him or her in THAT CLASS. Mention it in their academic report, so that other teachers in the university are aware, and they the teachers themselves can decide whether or not they want that particular individual in their classroom.
What I suggest is more forgiving. The 12-month suspension is harsh, but after the student has completed that obligation, he or she can return as a student in full status. I don't think people should have damaged "permanent records" for cheating, but I do think the punishments should be decisive and severe enough to encourage the person to think differently about the actions that created the problem.