A final decision on student tuition fees must be made by September, the Employment and Learning Minister said.
One option is for charges to be increased to £4,500 a year, Stephen Farry added. Another would be a reduction in funding of up to £100 million a year - the equivalent to running a university.
The debt would be paid off over a period after the students graduate, if Britain`s example of increased student fees is followed.
Mr Farry told the Assembly: "We must urgently determine and communicate fee levels and support arrangements for entry in September 2012 to the prospective students, their parents, the institutions and other key stakeholders.
"The final decision must be made by September 2011, to provide clarity and certainty for families, students and institutions."
He said the issue of fees was inextricably linked to his department's budget and that he intended to table a paper at the Executive within the next few days.
The current budget is premised upon fees being increased to £4,500 a year. If fees are not increased, the department faces a £40 million funding shortfall a year by 2014/15. Other options include: passing on the shortfall to the universities; reducing investment in other departmental services or seeking additional resources from the executive.
The Alliance Party MLA warned that asking universities to absorb the cost would mean many more students going to Great Britain.
"This would be at a time when we are trying to give out a message that Northern Ireland is open for business, that we can grow our own local companies and attract companies from overseas," the minister said.
"Those companies will be looking for a guarantee that we will have a highly-skilled workforce. That includes highly skilled graduates coming out of our local universities."