Council economic development manager Allan MacGibbon told councillors that as well as cuts in government funding, UCOL was carrying "significant" financial losses on the Wanganui campus.
And while government funding cuts had capped the number of full-time students it could take, it also meant student numbers could not be increased.
Mr MacGibbon said there were other issues around earthquake ratings of some its buildings.
"Even if enrolments could be lifted, there is no government funding to support that lift. It's a classic Catch-22 situation," he said.
Programmes losing money and inadequate student numbers meant the long-term viability of the campus was under threat, he said. And stopping the intake of students next year would have a negative impact on the fine arts and glass courses.
"There's only one way to grow UCOL income and that's in the area of international, full fee-paying students.
" This is any area in which UCOL has not performed particularly well," Mr MacGibbon said.
Currently UCOL earns $3 million from international students and he said if this income could be lifted to $7 million it would create surpluses more than sufficient to secure the campus.
He said closure of the campus altogether would have a major impact on the local economy, lose a vital education resource and change the perception of the district. But to ensure UCOL's long-term existence in the city, growth of student numbers was the only option.
Councillors questioned whether the charter, established in 2002 when UCOL took over Wanganui Polytech, was being acknowledged but Mr MacGibbon said he believed the charter did not have any relevance "under the way UCOL operates".
He said it needed to be replaced by a memorandum of understanding between UCOL and the community.
Councillor Sue Westwood said the intent or meaning of the charter had not changed.
"I've certainly never seen anything to say that it doesn't exist. Rather it's been ignored," Mrs Westwood said.
Councillor Rob Vinsen said he was concerned that UCOL had not delivered in terms of getting international students to enrol in Wanganui courses and he said the council should look at other tertiary providers that could take over the campus if that was on option.
Councillor Philippa Baker-Hogan said that, while she liked to think the council could work with UCOL, "their actions are leaving us in a precarious position".
Councillor Nicki Higgie said UCOL did not understand or want to understand the community's concerns.
"There has been misinformation around this whole process," she said.
Mrs Westwood said the council needed to go directly to the Minister of Tertiary Education and get "a stay of execution" put on the process for a year to give it time to investigate all the issues.
"We need time to apply due diligence. Until now, this process has been based on speed and not quality."
Councillor Hamish McDouall said stopping an intake for a year would be the death of the fine arts courses and he argued UCOL had not been co-operative or trusting with the Wanganui community.
"Their marketing has been appalling and this situation represents a dereliction of duty on their part." He said UCOL had been manipulative and the council's reaction was "a shot across their bows".
Mrs Baker-Hogan said the stance the council was adopting may be seen as "you give what you get" but said UCOL had brought this situation on itself.
A crowd of students and supporters from the Whanganui UCOL crammed into the council chamber and delivered some impassioned speeches before the council debate started.
Friends of the Wanganui Polytech spokeswoman Deb Frederikse urged the council to do all it could to retain the fine arts courses. "UCOL has not supported this polytech as it promised to do when the charter was drawn up in 2002."