U's boss John Taylor told their official website: "We need to see if we can get things sorted out with Daniel and obviously we've got to talk to him and his father and see if we can get something sorted."
City are willing to let the player - who joined from Southend in December 2002 - go on a free transfer.
Nathan Peat is also on loan to Cambridge from City, but Taylor hasn't made a decision after bringing the utility player off the bench twice.
He said: "His contract is up at the end of the season but we haven't seen enough of Nathan yet.