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.
They have decided to let her go back and re-evaluate in the Spring. This issue really has caused quite a disrupt with the parents. Initially, the Dad suggested she come home and Mom said, “She isn’t doing anything that everybody else isn’t doing”. Then Mom wanted her home and Dad pushed to let her pull herself up for one more semester. What is somewhat unusual is this girl has always been bright, respectful, well behaved and wouldn’t go to a University that offered a partial scholarship because it was a known “party school”. I guess the child that initially leaves isn’t necessarily how the child will remain. I agree that they need to put it down in writing. That way, “I don’t remember that part” isn’t a factor, is it?
Just my two cents worth but I feel that parents that pay the tuition or other items have a “say” in what is expected. Don’t get arrested, don’t get on “academic probation”, do as well as you can grade wise and get a part time job to help with costs isn’t a huge list to ask for. Perhaps I hold this belief because I worked close to full time to help with costs and knew that my widowed Mother was busting her butt as a nurse to pay the tuition. With two younger brothers needing items, I knew my tuition was a family sacrifice. Thus, I tried to earn this “gift” with good behavior, grades and worked as much as humanely possible to pay for gas, car insurance, car tires/oil, my own clothes, food, etc.. I didn’t see my four years in college as expected... I saw it as an investment in my future and financially... it was a risk to my Mother and younger siblings.