When users cancel (are changed to membership level 0) we give them another "cancelled" level.

pmpro_changeMembershipLevel.php

<?php
/**
 * When users cancel (are changed to membership level 0) we give them another "cancelled" level.
 * Can be used to downgrade someone to a free level when they cancel.
 * Will allow members to the "cancel level" to cancel from that though.
 */
function pmpro_after_expiration_change_membership_levels( $level_id, $user_id ) {
		// set this to the id of the level you want to give members when they cancel
	$last_level_4 = 4;
	$level_4_cancel_id = 3;

	// if we see this global set, then another gist is planning to give the user their level back
	global $pmpro_next_payment_timestamp;
	if ( ! empty( $pmpro_next_payment_timestamp ) ) {
		return;
	}

	// are they cancelling?
	if ( 0 === $level_id ) {
		// check if they are cancelling from level $cancel_level_id
		global $wpdb;
		$last_level_id = $wpdb->get_var( "SELECT membership_id FROM $wpdb->pmpro_memberships_users WHERE user_id = '" . $user_id . "' ORDER BY id DESC" );
		if ( $last_level_4 === $last_level_id ) {
			// otherwise give them level $cancel_level_id instead
			pmpro_changeMembershipLevel( $level_4_cancel_id, $user_id );
		} else {
			return; // let them cancel
		}
	}
}
add_action( 'pmpro_after_change_membership_level', 'pmpro_after_expiration_change_membership_levels', 10, 2 );