The German university fee system is on the brink of collapse after another state confirmed it would abolish charges for students following a change in local government.

The city of Hamburg – a state in its own right – will follow the lead of several other states that have scrapped fees since last month's elections saw Angela Merkel's Christian Democrats ousted by the centre-left Social Democrats.

A spokesman for the Social Democrats said: "Tuition fees keep young people from low-income families from studying and are socially disruptive."

North Rhine-Westphalia announced it would scrap fees earlier this month, and once Hamburg follows suit only three of Germany's federal states – Baden-Wüttemberg, Bavaria and Lower Saxony – will continue to charge.

Universities in England are poised to raise their fees to as much as £9,000 a year after a controversial vote was pushed through the Commons last year.

German universities fear the U-turn over fees will leave them facing dramatic shortfalls in funding.

Dr Holger Fischer, vice-president of Hamburg University, said: "It is a catastrophe for the university." He added: "We were obliged to spend the fees we received on investment in teaching, and it gave us the chance to improve the teaching and infrastructure."

The move could have serious repercussions for the whole of Germany's higher education system, said Barbara Geier, executive board member of education union GEW. "I think it will happen and the moment that fees are abolished in Hamburg, they will be abolished throughout Germany."

Hamburg SPD said it would make up for the shortfall in funding through "cuts in other areas and by budgetary regrouping". But universities doubt this will fully cover the losses. "The level of our teaching will have to decrease dramatically," said Fischer.

Unlike in England, where student fees have cross-party support, the idea has never taken hold in Germany. "There is a tradition here that education is free from beginning to end, and that is very difficult to change," Fischer said.

Fees would be very difficult to reintroduce, he added. "Once the fees had been introduced, the students got used to it. If they are abolished now it is going to be impossible to reintroduce them for a very long time." At Hamburg University students currently pay €750 a year, reduced from €1,000 a year when fees were first introduced in 2007 after persistent student protests, and coalition bargaining. Government grants of up to around €600 a month for students from low-income families are common.

But there is little sense from students they are over-privileged. Sören Faika, president of the Asta student union at Hamburg, said a free education for all, up to university level, was part of the treasured "Humboldtian" ideal, named after 19th-century education reformer Wilhelm von Humboldt.

"Part of that ideal is that you can study what you are passionate about, and education is free for all so that no one is excluded," he said. "When we look at the UK, it is crazy. You may think we are lucky, but it is a different situation."

The ideal had not only been threatened by fees but by the introduction of Anglo-Saxon-style bachelor's and master's degrees, which do not allow students the freedom to explore their interests, he said.

Following the Bologna agreement, which aimed to standardise higher education across Europe, courses in Germany were shortened to three years for a BA, with an extra two years to attain a MA. In a country were students commonly studied for six to seven years for their initial degree, this was not welcomed.

"There is this feeling that the system has become too Anglo-Saxon," said Faika. "It's prescriptive – you have to be a machine."

Others argue that since the new system was introduced the value of a first degree has decreased – a job in the German civil service, for example, which stipulated only one degree previously, now requires an MA.

But it stopped the small number of "lifetime students" – those who continued studying over 10 years – said Fischer, as well as improving dropout rates and preparing students to enter the working world sooner.

While there was a danger that focusing too closely on students' post-degree job prospects could discourage the taking of less "useful" subjects, it was something the country could resist, he added.

"It would be a real pity to lose those subjects," he said. "And if Germany cannot afford to let its students study Egyptology or Hungarian literature – then where can?"