"Football will never again be placed ahead of educating, nurturing and protecting young people," NCAA President Mark Emmert declared in announcing the penalties.
The governing body of college sports shredded what was left of the Hall of Fame coach's legacy - the sanctions cost Paterno 111 wins and his standing as the most successful coach in the history of big-time college football - while dealing a severe blow to the university's gold-plated gridiron program.
The NCAA ordered Penn State to sit out the postseason for four years, slashed the number of scholarships it can award and placed football on probation, all of which will make it difficult for the Nittany Lions to compete at the sport's highest level.
Raising the specter of an exodus of athletes, the NCAA said current or incoming football players at Penn State are free to immediately transfer and compete at another school.
For a university that always claimed to hold itself to a higher standard - for decades, Paterno preached "success with honor" - Monday's announcement completed a stunning fall from grace.
Penn State meekly accepted its punishment, pledging to hold itself to high standards of honesty and integrity.
But Paterno's family said in a statement that the sanctions "defame the legacy and contributions of a great coach and educator." Echoing the complaints of many outraged and heartbroken Penn State fans, the family also criticized university leaders for accepting the punishment without insisting on a full investigation and hearing on the school's handling of the sexual abuse allegations against former coaching assistant Jerry Sandusky.
"This is not a fair or thoughtful action; it is a panicked response to the public's understandable revulsion at what Sandusky did," the family said.
Emmert said the penalties reflect "the magnitude of these terrible acts" and also "ensure that Penn State will rebuild an athletic culture that went horribly awry."
He said the NCAA considered imposing the "death penalty," or a complete shutdown of the football program for a season or more, but decided to keep Penn State in the fold so that it could begin transforming a culture in which football played an outsized role. The NCAA also worried about the unintended consequences of a complete ban, he said.
"Suspension of the football program would bring with it significant unintended harm to many who had nothing to do with this case," Emmert said. "The sanctions we have crafted are more focused and impactful than that blanket penalty."
Sandusky, a former member of Paterno's coaching staff, was found guilty in June of sexually abusing 10 boys over 15 years, sometimes on campus. An investigation commissioned by the school and released July 12 found that Paterno, who died of lung cancer in January at age 85, and three other top officials at Penn State concealed accusations against Sandusky to shield the school from bad publicity.
The sanctions came a day after the school took down a statue of Paterno that stood outside Beaver Stadium.
Gov. Tom Corbett expressed gratitude that Penn State escaped the death penalty, saying it would have had a "severe detrimental impact on the citizens of State College, Centre County and the entire commonwealth of Pennsylvania."
A drop-off in attendance and revenue could damage both the university, where the powerhouse football team is a moneymaker that subsidizes other sports, and the region as a whole, where Saturday afternoon football at Penn State is an important part of the economy.
But given Penn State's famously ardent fans and generous benefactors, the precise economic impact on Penn State and Happy Valley, as the surrounding area is known, remains unclear.
First-year coach Bill O'Brien, who was hired to replace Paterno, will have the daunting task of luring new recruits while trying to keep current players from fleeing the program. Star players such as tailback Silas Redd and linebacker Gerald Hodges are now essentially free agents.
"I knew when I accepted the position that there would be tough times ahead," O'Brien said. "But I am committed for the long term to Penn State and our student athletes."
Separately, the Big Ten announced that Penn State will not be allowed to share in the conference's bowl revenue during the NCAA's postseason ban, an estimated loss of about $13 million.
Emmert fast-tracked the penalties rather than go through the usual circuitous series of investigations and hearings. The NCAA said the $60 million is equivalent to the annual gross revenue of the football program. The money will go toward outside programs devoted to preventing child sexual abuse or assisting victims.
Penn State said it will pay the fine in five annual installments of $12 million but did not disclose where it will get the cash. The governor demanded assurances from Penn State that taxpayer money will not be used to pay the fine, while the NCAA insisted the university maintain spending on other sports and scholarships.
By throwing out all Penn State victories from 1998 to 2011, the NCAA stripped Paterno of the top spot in the record book. The governing body went all the way back to 1998 because, according to the investigative report, that is the year Paterno and other Penn State officials first learned of an allegation against Sandusky.
Former Florida State coach Bobby Bowden will replace Paterno with 377 major-college victories, while Paterno will be credited with 298.
"I didn't want it to happen like this," Bowden said. "Wish I could have earned it, but that's the way it is."
Penn State will also lose 20 scholarships a year for four years. Major college football programs are normally allowed 85 scholarship players per year.
The postseason ban is the longest handed out by the NCAA since it gave a four-year punishment to Indiana football in 1960. Big Ten Commissioner Jim Delany said that Penn State players will probably be allowed to transfer within the conference, something that is usually restricted.
Penn State players left a team meeting on campus in State College without talking to reporters. Penn State's season starts Sept. 1 at home against Ohio University.
The news devastated senior Nicole Lord, who questioned why Penn State's student body, and especially its student athletes, should be punished "for the wrongs of three men and a monster."
"They keep breaking our hearts and breaking our hearts and breaking our hearts," she said.
"Our heritage, our legacy has been tainted and damaged," said Troy Cromwell, a wide receiver on the 1986 team that won the second of Paterno's two national championships. Cromwell said he felt bad for current and incoming players, "but at the end of the day, there were still those kids, those poor kids, and those victims, and we have to think about them first in everything that we do."
At a student union on campus, several dozen alumni and students gasped, groaned and whistled as they watched Emmert's news conference.
Southern California, Ohio State and Alabama have all run afoul of the NCAA. Even Notre Dame went on probation for two years after a booster lavished gifts on players in the 1990s. The harshest penalty handed down to a football program came in the 1980s, when the NCAA shut down Southern Methodist University's team for a year. SMU football has never gotten back to the level of success it had before getting the death penalty.
The Big Ten's Delany said he believes Penn State is capable of bouncing back. "I do have a strong sense that many of the ingredients of success are still at Penn State and will be there in future years," he said.
Craig Depkin II, a professor of economics at the University of North Carolina, Charlotte, noted the NCAA penalties won't prevent Penn State - a school with a $4.3 billion annual budget - from spending the same amount on its football program in future years, or even more.
"There's anecdotal evidence that you do see increases in funding after a ban," Depkin said of other teams that have been sanctioned. "The idea (is) that you would spend more during times of crisis" to let players and fans know that the program isn't going away.
Russo reported from New York. Associated Press writers Mark Scolforo in State College, Kevin Begos in Pittsburgh, Tom Coyne in Indianapolis and Brent Kallestad in Tallahassee, Fla., contributed to this story, along with AP videographer Dan Huff in State College.