The decision came after a closed door meeting by the board which oversees student media at the school.
The Board of Student Communications released a statement saying that they found that McSwane violated the Rocky Mountain Collegian's code of ethics, which bars "profane or vulgar words" in opinion writing. The board also had the power to fire him or demote him.
McSwane canceled a press conference he had scheduled to respond to the board's decision and declined comment. He has 20 days to appeal the board's decision.
An earlier public hearing attracted hundreds of students, many of whom spoke in support of McSwane and his decision to publish an editorial which read "Taser this: (Expletive) Bush". It was published in response to the Tasering of a student at the University of Florida.
The newspaper maintains an office on school grounds but is self-funded through advertising.
Since the editorial ran, 18 advertisers either called to pull their advertising or threatened to end their advertising in the newspaper, which could result in some $50,000 in potential lost revenue. Officials have said that staff would have to take an across-the-board 10 percent pay cut to make up for the losses.
McSwane previously drew attention for contributing to a report on Denver's KCNC-TV which won a Peabody Award. As a high school senior, he posed as a dropout with a drug problem to find out how far military recruiters would go to try sign him up. He was advised to get a fake diploma online and given advice on how to beat a drug test.