The first private offshoot of a public university in Australia is under investigation by state and federal authorities.
Melbourne University Private was set up by the University of Melbourne in 1998 to sell courses to Australian businesses and foreign students. The private university was expected eventually to enrol 10,000 students paying up to A$25,000 (£8,600) a year, which would have generated an annual turnover of about A$250 million.
But only 100 students are enrolled on formal award courses, and 1,000 others are expected to take short-term professional development programmes this year. MUP has losses of more than A$2.5 million.
Victoria state's auditor-general is leading an inquiry that will focus on an A$150 million bank loan the public university has taken to construct new campus buildings, one of which is intended to house MUP.
Meanwhile, the federal senate inquiry into higher education is expected to ask why the private university has failed to attract investor support and why it has so few students.
The University of Melbourne predicted that one of MUP's proposed three schools would have 444 students by its third year and 745 by the tenth. So far, only two of the schools have been established and enrolments have not met targets.
The university council allocated an initial A$10 million to establish MUP, with A$15 million more earmarked once the private offshoot had attracted an equal sum from private sources. So far, one company has backed the project with a $2 million donation.
Critics among MUP's students and staff said the commercial failure raised serious questions about the university's spending priorities.
But vice-chancellor Alan Gilbert said MUP was solvent and was active "across the full range of educational and training functions for which it was established".
Professor Gilbert, who is also chair of the Universitas 21 consortium of international universities, has long argued that unless Australia's public universities attract more private income, they will never become world-class institutions.
"We do not think Australian higher education will survive competitively at the upper levels in the current environment," he was quoted as saying last week.
He also predicted that the plan to establish a Universitas 21 online university would deliver the biggest single source of revenue to its member universities outside government grants within ten years.