Vince Cable plans an early repayment penalty for tuition fees to prevent rich graduates paying less for their university education than those on middle incomes by avoiding cumulative interest payments.

Cable is battling today to prevent a full-scale rebellion taking hold of the Liberal Democrats over plans to lift the cap on university tuition fees, as Labour piled in accusing the Lib Dems and Tories of a betrayal of poor and middle-class students.

The business secretary outlined the proposal to Lib Dem MPs last night and he may indicate his support for the move in his Commons statement today. It is not clear how exactly he would organise the penalty, but it suggests he recognises there is a flaw in the scheme being proposed by Lord Browne that makes the scheme less progressive than it might be. It is also not clear whether the early repayment penalty has the support of the Conservatives.

Lord Browne, the former chairman of BP, briefed all three main political leaders this morning on his complex proposals for a rise in fees.

At a difficult meeting with his backbenchers last night, Cable urged his party to recognise that not all student funding could go towards universities and in the name of fairness some cash had to go those needing to learn basic skills.

He also insisted he had thought of ways to prevent richer students simply paying off their debt quickly, so avoiding crippling interest charges over 30 years.

One senior Liberal Democrat said: "This is a moment where it may be best if we just admit that what we said before the election about opposing tuition fees was wrong. Being in government means we are going to have to go through a long process of growing up."

But Greg Mulholland, the Liberal Democrat MP for Leeds North West, emerged as the ringleader of the rebellion, saying: "Without Lib Dem support and with Lib Dem ministers abstaining, it will be very difficult to get this through.

"It is certainly my belief that this is not a done deal and the strength of feeling among Lib Dem MPs could derail any attempts to see fees rising substantially and I will certainly be doing everything I can to make that happen."

Mulholland insisted that his rebellion did not a represent a threat to the future of the coalition arrangement.

He added: "I do not think this is a threat at all because it [the agreement] clearly states that Lib Dems will be allowed to abstain."

Many Liberal Democrat MPs know their credibility and chances of retaining their seats rest on showing they are fighting the rise in tuition fees. Every single Lib Dem MPs signed a pledge that they would oppose tuition fees; Nick Clegg made the pledge on camera.

The shadow cabinet met yesterday to reaffirm its support for a graduate tax, but the meeting recognised there are flaws with a tax that will have to be addressed in the weeks ahead.

Simon Hughes, the Lib Dem deputy leader, won an assurance weeks ago from Clegg that he would not immediately set out the complete coalition response to the proposals, but instead give the party time to develop an agreed response.

Today Hughes called for all Lib Dems to "consider fully" both Browne's proposals and the government's response. He said his fellow MPs were "very conscious of the positions we have taken on higher education and the policies we campaigned for at the last election".

"Parliament should only support a progressive system which takes into account future earnings and makes sure that those who benefit most financially from a university education contribute the most," Hughes added.

Tim Farron, the Lib Dem MP who is standing for the post of party president, wrote on the Twitter website that he would vote against an increase in tuition fees. "Unhappy with Browne report & would vote against fee rise," Farron posted.

John Leech, the Lib Dem MP for Manchester Withington, said: "I signed the NUS pledge and supported our manifesto, which promised to vote against any rise in tuition fees. I am going to keep that promise. This is a political red line for me."

His fellow MP Stephen Williams told Radio 5 Live he was unhappy about tuition fees going up and said he would "certainly" vote against the government if the Browne report was just about increasing tuition fees. But he hinted that, if Cable were to produce a more progressive scheme, he could support it. "Effectively at the moment you've got a flat-rate poll tax on all new graduates and if Vince is able to come up with a progressive system with different thresholds, perhaps different rates of repayment – you wouldn't call it a graduate tax, but it will have elements of graduation within it – that will be a much more progressive system for repayment than we have at the moment."

Gordon Birtwistle, the Liberal Democrat MP for Burnley, who is a parliamentary private secretary in the Treasury, said: "At the moment, the Browne report as it is, is unpalatable, and we need to see what changes we can make. I was against an increase in tuition fees, but the financial situation makes it inevitable that it will happen. The country is basically bankrupt."

Asked how he would vote, Birtwistle said: "I am keeping my powder dry."

John Hemming, the Lib Dem MP for Birmingham Yardley, also gave a measured response, saying: "If you have a progressive scheme in which people on high incomes pay more than those on low incomes then it is moving towards a graduate tax. I will be getting out my calculator and studying the proposals in detail. One question is whether it is the fees system or a progressive graduate contribution."

Clegg knows that many of his minsters will be free to abstain, and many are likely to do so, but he cannot yet know if public opinion will see that as sufficient form of resistance.

Linda Jack, a member of the Lib Dems' federal policy committee, told the BBC's World at One she thought around 30 Lib Dem MPs could rebel over tuition fees. "I expect them to vote against because, frankly, if they abstain they are effectively voting for, because they know that if they abstain it will go through. The integrity of the party is at stake here. Everybody signed that pledge that they would vote against an increase in tuition fees so they have really got to stick to their guns on this."

Liberal Youth, the youth and student wing of the Liberal Democrats, warned that removing the cap on tuition fees would lead to unrestricted costs and a market in higher education.

Martin Shapland, the group's chairman, said: "You simply cannot build our future on debt. This move has the potential to cripple students with unprecedented levels of debt which will act as a real deterrent to those from poorer backgrounds seeking a better life through the education system.

"Higher fees will not be acceptable to grassroots Lib Dems and, I imagine, most of the parliamentary party."

The shadow business secretary, John Denham, pointed out that Browne's conclusions seemed "to reflect a belief that the coalition government will cut spending on higher education teaching by around two thirds. This is a massive cut even when set against the coalition's aim to cut spending by 25%."

He went on: "It is right that students make some contribution towards the cost of their higher education. However, the system must be fair, progressive, sustainable, and ensure that students can choose the course most suited to them and not be forced to shop around for the cheapest course.

"We are concerned that many graduates will be shackled by debt for the majority of their working lives, that those on middle incomes in typical graduate jobs may pay more than their fair share and the highest earners will pay less and be free of debt much earlier."

David Blunkett, a former education secretary in Tony Blair's government, was even more scathing, saying: "This is a complete betrayal by the Liberal Democrats of everything that they have ever said on higher education and of the platform they stood on at the general election.

"It is my strong belief that reverting to a real rate of interest transforms the student finance system into a market-driven approach which will distort what is available by allowing the better-off to access more favourable terms – for example, by remortgaging their property or arranging for beneficial terms outside the student loan framework. These moves are not available to less well-off students and their families.

"This is a short-sighted, unimaginative and short-term government with the vision of a bat and the antennae of a mollusc."

Additional reporting by Andrew Sparrow and Tom Moseley