With that said, radon is all around us. Above 4.0 is what the EPA suggests as the actionable levels for radon. You are right on the cusp.
Every house will have a radon reading of something, it can not be totally avoided.
I am wondering if there is something else going with the buyer. If your are willing to remediate the radon and would think for most buyers that would be something that they would be happy with.
Talk to your listing agent and see if there are other issues going on. Sometimes the radon is the straw that broke the camel's back. Home buyers sometimes get overwhelmed with a home inspection. Good communication between your sellers agent and the buyers agent is vital in holding the deal together.
The buyer can back out based on the test, depending on the contract.
Again it all falls back to the contract and the terms that are laid out. Most contracts give a specific date to which the buyer has to notify you of withdrawal of the contract. Most spell out that they have one day after the end date to notify you (or your agent) in writing that they are withdrawing and all deposit moneys to be returned.
If they miss a contingency date then yes their money is at risk. Escrow monies are complicated and it is not as simple as the listing agency turning the money over to you. Both parties need to agree. If it comes to that point and you have 28k in escrow its time to talk to an attorney.
Here is a quick article on escrow money deposits: http://wp.me/p2FBgc-Ua
I hope it all works out for you, I understand how nerve wracking it is to be hanging in the balance.
If they are within their inspection period yes they are most likely able to do so. Radon is easily mitigated. It is important to ask your agent to try and determine whether or not there are other issues that could be causing them to be concerned. Often radon is used as a material defect when it's actually a buyer with cold feet. Best of luck
You should of had in the offer in the event of elevated levels of radon the seller will mitigate it. Good luck