All current student athletes will be offered the opportunity to immediately transfer and begin playing for other schools.
Calling the response of coach Joe Paterno and three other top Penn State officials to early allegations against Sandusky the most painful "chapter in the history of intercollegiate athletics," NCAA President Mark Emmert described the sanctions at a news conference in Indianapolis as "greater than any others seen in NCAA history"
"Football will never again be placed ahead of educating, nurturing and protecting young people," he said. "For the next several years, Penn State can focus on rebuilding its athletic culture, not on whether it's going to a bowl game."
Still, the association stopped short of imposing the harshest punishment in its arsenal - the so-called "death penalty." That ruling would have forced Penn State to shut down its football program completely for a season or more.
In some ways, though, the sanctions imposed Monday were far worse than a one-season ban and threaten to oust the university from the upper echelons of college sports for years.
"I knew when I accepted this position that there would be tough times ahead," said Penn State head coach Bill O'Brien, who ascended to lead the program as the scandal still unfolded. "But I am committed for the long term to Penn State and our student athletes."
In a statement released shortly after the announcement, Penn State President Rodney Erickson said that the university had agreed to the penalties and would follow the NCAA proscribed plan.
"We are entering a new chapter at Penn State and making necessary changes," he said. "We must create a culture in which people are not afraid to speak up, management is not compartmentalized, all are expected to demonstrate the highest ethical standards and the operating philosophy is open, collegial and collaborative."
Paterno's family reacted angrily, again seeking to deflect attention from whatever the coach did, or did not do, to Sandusky himself.
"The sanctions announced by the NCAA today defame the legacy and contributions of a great coach and educator without any input from our family or those who knew him best," the family said in a statement.
"That the [university] president, the athletic director and the board of trustees accepted this unprecedented action by the NCAA without requiring a full due process hearing before the Committee on Infractions is an abdication of their responsibilities and a breach of their fiduciary duties to the University and the 500,000 alumni. Punishing past, present and future students of the University because of Sandusky's crimes does not serve justice. This is not a fair or thoughtful action; it is a panicked response to the public's understandable revulsion at what Sandusky did."
Watching the news from the university's student center, a crowd of alumni, visitors and students gasped as the penalties were announced.
"It's definitely going to teach everyone a lesson," said freshman Maria Wolfeo. "But it's also punishing football players who had nothing to do with this."
The announcement is only the latest blow to a campus rattled for the last eight months by Sandusky's crimes. In June, a Centre County jury convicted the 68-year-old of 45 counts of abuse involving 10 boys, many of whom were molested in Penn State football facilities.
A scathing grand jury report issued upon Sandusky's arrest led to the firing of revered head coach Joe Paterno and then-university president Graham B. Spanier. And earlier this month, an internal investigation led by former FBI Director Louis Freeh implicated both men and other athletic department officials in covering up Sandusky's crimes for more than a decade.
Just a day earlier, Erickson ordered the removal of an iconic statue of Paterno from outside the university's football stadium, saying it had become a distraction as the campus continues to heal.
Emmert acknowledged Monday that everything about the NCAA's handling of the Penn State situation was unusual. Typically, the organization has been slow to act on the recruiting and payment scandals that take up most of its enforcement team's time.
In this case, the association relied on the findings of Freeh's investigation, which Emmert described as more comprehensive and thorough than any the NCAA had ever done.
"The circumstances here are pretty unique, hopefully unique." he said. "I think normally the NCAA would rather give due process, but I think this could be an exception. I don't see this in all likelihood coming up again."
The decision to vacate all 111 team wins between 1998 - the year Penn State administrators first became aware of allegations against Sandusky - through 2011 proved most controversial to many. It toppled Paterno from his perch as the NCAA Division 1 coach with the most victories to his name, reducing his old 409 total to 298.
It also decimated the individual records of hundreds of players who were on the team exclusively during those years. In an ironic twist, the ruling made former player Mike McQueary the last Penn State quarterback with a recorded win.
McQueary, who has emerged as a central figure in the Sandusky scandal, told Paterno and other Penn State administrators in 2001 that he saw Sandusky molesting a boy in a locker room shower. According to Freeh's report, university officials decided against going to police for fear of bad publicity.
The university will also have up to five years to pay the $60 million fine - a sum equal to about one year of the football program's revenue. The money will be donated to organizations for child abuse prevention, NCAA executive committee chairman Ed Ray said.
Additionally, the school will lose 20 football scholarships hindering its ability to recruit and be placed under five years of probation. During that time, an on-campus integrity monitor will report to NCAA on Penn State's ongoing compliance with the plan. Student athletes and athletic department employees will have to complete yearly training courses on ethics and reporting violations.
"Today Penn State takes another step forward in changing the culture at the institution," Athletic Director David Joyner said. "We are deeply disappointed that some of our leaders could have turned a blind eye to such abuse, and agree that the culture of Penn State must change."
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Staff writer Melissa Dribben contributed to this article.