European students could be charged up to £22m a year to come to Scottish universities under proposals to keep higher education free for all nationals wishing to pursue further education.

The new measures, coupled with much higher charges for English students, are designed to fend off increasing demands for the Scottish government to drop their long-standing opposition to making Scottish students pay a graduate tax to help increase income for universities.

The introduction of higher fees for English universities of up to £9,000 a year has led Universities Scotland to estimate its members face a "funding gap" of around £202m, hampering their ability to compete for the best students, academics and researchers.

Scotland's universities have already had their government funding cut by £67m next year in the last budget.

The pressure on Scottish higher education – which will become a major issue in May's Holyrood election campaign – has been intensified by a surge in the number of EU and English students coming to Scotland.

Under EU rules, European students are entitled to the same free tuition given to Scottish students, which is estimated to cost £75m a year. More English students are travelling north to exploit the often cheaper costs of going to Scottish universities.

Mike Russell, the Scottish education secretary, said he would soon announce new higher fees for English students. His officials have previously suggested those could be £6,500 a year.

He added that his officials were also looking very closely at the Irish model of imposing service charges on all undergraduates, to force EU students to pay indirectly towards their university costs. That would generate up to £22m a year, Russell said.

That proposal would be introduced if the Scottish National party won May's Holyrood elections, he added, but only if it could legally introduce a system where no Scottish student had to pay. His officials were investigating whether a service charge scheme could be means-tested within Scotland.

Russell said these proposals, and a £26m-a-year efficiency programme being imposed on universities, would close the gap to about £70m a year. That would be a sum small enough to avoid tuition fees or graduate contributions, and allow the Scottish government to continue directly funding higher education.

Russell said these measures would be "uniquely Scottish solution", which was founded on a long-standing principle of free higher education. "The over-arching philosophy remains that education must be based on ability, not ability to pay," he told MSPs.

Attempting to head off complaints that this system would increase discrimination by Scotland against non-resident students, he added: "In an ideal world, no student attending a Scottish university would pay fees. However, the rest of the UK has fees and their politicians have the right to make that choice.

"My main priority is to protect opportunities for Scottish students to study at Scottish institutions. I make no apologies for that."

Universities Scotland, business leaders and the Scottish Tories believe that charging fees or some form of graduate tax will prove essential, and dispute Russell's figures. Facing a tough battle in the election to wrest power from the SNP, Labour last week changed its stance on graduate charges by backing the SNP's decision to keep universities free for all Scottish students.

Alastair Sim, director of Universities Scotland, said Russell's figures, and those adopted by Labour, were "optimistic". The £202m funding gap was not the worst case scenario: if more English institutions chose the highest fees, the gap could increase greatly.

The parties' promises to address this problem "need to be based on realism about the scale of the challenge".

Sims said the clear legal uncertainties about following the Irish model made it very risky to base funding on that working as planned.

"Until these legal uncertainties are resolved we cannot rely on projected income from EU students as a means of addressing the funding gap. We also have to realise that if fees are introduced, this would impact on student behaviour. There is no guarantee this would generate a reliable stream of £22m," he said.

The Tories accused Russell of "fantasy arithmetic". Liz Smith, the Tories' shadow education spokeswoman, said: "Mike Russell is living in cloud cuckoo land if he really believes that the higher education funding gap between England and Scotland might come down to £75m."

She asked what would happen if the funding gap became larger. "That will surely mean that EU students and students from the rest of the UK will have to pay even higher fees or that Scottish taxpayers are saddled with the bill or perhaps both. Either way, this policy is simply not believable."