The government is giving the West Coast's struggling Tai Poutini Polytechnic a $33-million bailout.
Like other polytechnics, Tai Poutini accepted money from the government based on how many hours it planned to spend teaching its students.
But between 2010 and 2015 it taught them significantly fewer hours than it claimed, a Tertiary Education Commission report released on Wednesday says.
Scaffolding, search and rescue, quarrying, mining, crane operations, and occupational safety and health courses were among those under-delivered.
"In some of the scaffolding programmes, students were receiving as little as 10 per cent of the teaching hours they were meant to," TEC monitoring manager Dean Winter said.
"That means that in a course where students were expected to receive nearly 200 hours of training, they only did 20."
These and other funding errors in 2016 left the polytechnic facing a $25m repayment to government funding provider, TEC.
However, on Wednesday, TEC and Education Minister Chris Hipkins said the government would write off the full debt.
"It simply cannot afford to repay this amount," Mr Hipkins said.
A further $8.5m would also be provided to help keep the polytechnic open in 2018, he said
Tai Poutini chief executive Alex Cabrera says improvements have been made over the past 18 months to rebuild trust.
"We know we have to do things differently," he said.
However, a business case for the polytechnic's recovery has now been deferred while wider changes were made in the education sector.
Tai Poutini was one of 16 polytechnics suffering from alarming drops in student numbers.
"It is critical we address these challenges across the whole network, rather than just one organisation at a time," Mr Hipkins said.
TEC said qualifications received from Tai Poutini had been assessed and were still valid because its students had been able to gain the required skills despite being taught less hours than promised.
It also said its report findings did not reflect "current practice" at Tai Poutini.
Tai Poutini needed to be supported because of its role providing education to benefit students and employers on the isolated West Coast, TEC said.
Lobby group Taxpayers' Union's Louis Houlbrooke called the bailout a disgrace.
"If any private business failed to provide the services it was paid for, it would quickly go out of business.
"The minister has justified the bailout of the polytech based on its West Coast location. But at this stage it would be cheaper to simply pay relocation and board costs for the 350 students than to keep the institute on life support."