I don't see a problem. Fail them. This is college, a paid program, not something like K12 where we want kids to learn so they can be productive adults. If someone wants to pay to fail, that's on them. I get that the school doesn't love what it could do to their graduation stats, but c'mon, it won't take long for the following cohorts to learn that the school will just fail them right out of the program for cheating, and they'll stop.

Fail so many students and you create a shitstorm though.