Did you ever see this policy actually trigger, though? Hard to tell since they may not have made it public, but as other people are saying, if that was taken seriously you'd see an awful lot of expulsions.
I can't speak for all of Michigan State University, where I got my degrees, but the computer science departments took it pretty seriously. One 101 course got roughly 1/3rd of the people in it failed one semester for copying. All homework assignments went through a turn-in system that examined the programs for plagiarism; details were sketchy for obvious reasons, but I had heard that a simple variable rename would not get past it. (Home-grown and based on what I heard, I believe it existed and worked roughly as described, since I could now write such a tool myself if I had need.)
That is fucked up; all the schools I've ever attended require expulsion, not failure, for proven cases of plagarism. Expelled students are basically immediately expunged from the records of any classes they were enrolled in at the time, as if they had never registered for them.