The Nittany Lions gave up 283 passing yards and 183 yards on the ground in the loss.
Penn State's second-half comeback bid fell agonizingly short in the game's final minutes.
Jess Mruzik's 21 kills and outstanding defensive showing elevated the Nittany Lions to the third round.
Wallace was questionable in last week's game against Maryland and Washington has missed the last two weeks due to an injury.
Penn State remains undefeated in conference play.
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