The UK government faces a legal challenge over its suspension of financial support for thousands of Romanian and Bulgarian students who claim they are being used by ministers desperate to appear tough on immigration.

A group of around 20 students, who are among thousands who have had loans and grants suspended by the government, are planning to launch a judicial review of the policy, which they claim is discriminatory.

"It appears these students are being discriminated against for political reasons," said Stuart Stevens, head of Holborn Chambers in central London, who is handling the case. "We are gathering evidence and I anticipate we will move towards a judicial review in the next week or so."

The government suspended the grants and loans after ministers said they had noticed a rise in the number of students from the two countries applying for maintenance support. Officials stopped all financial support in November last year, requesting fresh proof that students had been resident in the UK for the qualifying three years.

The move coincided with increasingly hostile rhetoric about an anticipated influx of "beggars and benefits cheats" from the two countries when working restrictions to Britain were lifted, on 1 January.

When the Romanian MEP Petru Luhan visited the UK earlier this month, he described the government's move as "xenophobic" and evidence of "anti- Romanian and anti-immigrant rhetoric" from leading politicians and sections of the media that was at odds with Europe's basic democratic principles.

"The government is trying to hide its own problems by blaming everything on Romanians – that is the feeling not only among Romanians, but generally in Brussels as well," he said.

Luhan said the UK's reputation as a successful, open country was being undermined, and: "Romanian students are victims of this political rhetoric and we see the rules do not apply for every student coming forward to the UK in the same manner, and this is a clear sign of discrimination against Romanians and Bulgarians. And this can not happen in an EU member state."

Luhan said he would be writing to David Cameron and the universities minister, David Willetts, asking them to urgently reconsider the suspension. He is also writing to the European commission and the Romanian prime minister asking them to address this "untenable situation".

"We cannot continue like this. The situation is getting worse and worse every day for Romanians living in the UK, and it is not acceptable."

Luhan met more than 500 Romanian students during his visit to London and said he was shocked by some of their stories.

"Many of the Romanians who I met are scared to admit they come from Romania. They are sometimes treated like criminals or beggars simply because they are Romanian. This is leading to a phenomenon that is clearly against European democratic principles."

David Willetts, the universities minister, announced the initial crackdown in a written statement in November. This was subsequently extended to cover other EU students at private colleges who claim maintenance allowance. But it is only Romanians and Bulgarians at both private and public universities who have been affected.

A spokesman for the Department for Business, Innovation and Skills said: "We have asked each of these students to supply additional information to support their applications for maintenance, before any further public funding is made available to them or to their institutions."

Alexandra Garabetanu, 33, is one of those considering taking legal action. She has lived in the UK since 2007 with her husband, Cezar, and their son. In September, she got a place on a two-year business course, but a couple of months later she got a letter saying her financial support had been stopped; months later, it remains suspended.

"My wife quit her job to do this course, to try and get a better job – to try to better herself," said Cezar, who works as a chef. "But without her working, I cannot afford to pay the rent on my flat with just my wage. And we have a three-year-old boy to look after."

He and his wife just wanted to "work hard, pay taxes and get on", and felt they were being singled out simply for being Romanian, he said.

"It is stressful, physically stressful. We didn't come here to steal or do anything wrong. We came here to make a family and make a better future for us. We are no different to anyone else: we just want to work hard for a better life for us and our family."