Could the parents in this case be excessive? Maybe and maybe not. Who better to know their daughter’s “normal” behavior vs one they are now defining as a mental illness. If the parents were such helicopter/controlling people.. why did they agree to let her go away to college (some 600 miles away?).
Reminds me somewhat of a close friend that I have that is dealing with her sophomore aged college daughter. The first year was great... honor roll, etc.. However, this year is diving fast. Poor grades, too much partying and has not lived up to the agreements with her folks (that is, stay on tract with the nursing degree she chose and get a part time job to help with the rent/tuition/car insurance. My friend called me and asked what I thought she should do: I said that there was a verbal contract between the parents and daughter prior to her going away to school. That contract has not been lived up to by the daughter. Thus, bring her home and now before they get the phone call of her in an accident, pregnant, etc.. If they want, enroll her in a community college and have her live at home. My friend’s fear? That she won’t come back ever and cut herself off from the family. So, I think this is a power position by the kid... do it my way or you’ll lose a child. I said: let them live on their own and see what life is really about. Sometimes reality is a far better teacher.
I think your advice is good. They are giving her the choice to return home to somewhat of a safety net to regroup/redirect, or to try to make it on her own and face the consequences. I agree with you. They should cut off the out of town college expenses now (do you know whether they decided yet for January semester? - just curious).
If she does come home, they need to sit down and put in writing, what they all agree to do... with the onus to be on the daughter to make progress/achievement checkpoints.