The source did not envision a scenario where McDonald, a native of Washington, D.C., would be welcomed back to the program.
While the source declined to give specifics on McDonald's dismissal, he did say it was not related to the recent scuffle in a State College apartment that allegedly involved several Penn State football players.
McDonald was not listed on the roster for Saturday's Blue-White Game.
McDonald arrived at Penn State in 2005 and redshirted as a true freshman. As a deep reserve in 2006, the 6-foot-2, 195-pounder played in seven games, catching one ball for eight yards.
McDonald was a two-sport standout at Dunbar High in Washington, D.C., helping the football team to three city championships and the basketball team to one title. He had 47 catches for 915 yards and 13 touchdowns on the gridiron as a senior.