An audit discovered higher than reported drop-out rates
Lecturers at London's largest university are striking over plans that could see 550 job cuts.
Members of the University and College Union (UCU) vowed to bring London Metropolitan University (LMU) "to a standstill" during the one-day strike.
LMU is being forced to repay over £50m after auditors found drop-out rates were higher than stated - it has been overpaid by £15m a year since 2005.
LMU said the university remained open and that a strike was "not the answer".
The university has over 34,000 students on its register and 4,612 members of staff.
'No other option'
Pickets lines are being staged at the main campus buildings in Holloway Road, north London, Aldgate East and Moorgate in the City and Whitechapel in east London.
Union leaders said the trigger to strike action was a "poorly thought through" redundancy scheme announced by managers in the middle of talks.
"The situation at London Met is bad enough as it is and industrial action was the last thing we wanted to see," said UCU's general secretary Sally Hunt.
"However, the institution's failing management has left us with no other option."
The LMU previously said that 330 staff would be asked to take compulsory or voluntary redundancy by July 2010, while some vacancies would not be filled.
On Thursday a LMU spokeswoman said: "We understand that this is a difficult period for staff at London Met but industrial action is not the answer.
"Strike action will not change the need to make the savings and may disrupt the running of the services we provide to students and our many partners."
The university aimed to keep compulsory redundancies to a minimum, the spokeswoman added.
"The most effective way of achieving this is to act quickly using such means as voluntary redundancy."
She said the university would remain "open as usual" during industrial action and that it had taken measures to minimise disruption.