Crazy indeed.
As lame as the state of Indiana ( who in their right mine would want to live there)how else could you convince someone to go there?
This is a Big Ten initiative that went public a few weeks ago. There is lots more to it.
In reality, the overwhelming majority of schools will not reduce or end a scholarship due to injury or a failure to improve unless that athlete was injured while doing something against team policy (like playing intra mural soccer) or just outright quit on their own.
I had a teammate get permanently injured the middle of freshman xc season. He received his full scholarship all four years in college. He even told the coaches he didn't feel right taking the money and wanted them to end his scholarship, but they said no.
I think this is typical of most schools. No school wants to receive a reputation of taking away scholarships and losing potential recruits as a result. This policy is just putting in writing something that is already happening.
I would think again. I believe you are misinformed. One example does not make it so for all schools.