Copenhagen University's arts faculty has been hit hard by a new mechanism that ties funding to the success rate of students.
Denmark's cash-per-student funding system means that a reduction in the number of exams passed by students leads to a cut in funding.
As a result, the faculty faces a deficit of DK30 million (£2.53 million), a moratorium on the appointment of new PhD students, staff dismissals, a reduction in course lengths and more students in each class.
Only 46 per cent of the 1,237 students who enrolled in 1990 had been awarded a degree for the three-year bachelor's course a decade later, faculty statistics published in the Danish weekly Weekendavisen have revealed.
Fewer than a quarter of the students had received their masters degree (two extra years on top of the bachelor degree) by 2000 and a quarter were still enrolled at the faculty.
Many drop out or change their course and in some subjects as few as 10-15 per cent finish their studies. In addition, a survey from 1996 showed that students spend only 19 hours a week on average on their studies.
The completion figures are "horrifyingly low", said Steen Schousboe, head of the institute of English.
"The figure for my own institute is somewhat under the average of 25 per cent, and I'm not surprised that only 15 per cent leave with a degree in their major subject. It's really quite unsatisfactory."
The university has decided not to make use of a new right to set a maximum study period after which students who have not finished their course can be expelled. Instead, the faculty council will contact students who have dropped out to investigate the reasons behind the high dropout rate and lengthy study times.
Tine Damsholt, course leader in ethnology, is to head the investigation. "We will find out whether they dropped out because they weren't properly counselled at the start of their studies or if there are other reasons. Some students may use a couple of years on another course while they're waiting to start on their dream subject. Perhaps they find out during the first year or two that they're really interested in something else."
Minister of education Margrethe Vestager believes that extra university funding, decided last year, will help stop the "negative spiral" of lower quality resulting from fewer active students.
Others see a lack of will to modernise the university's structure and training as the problem.