International students were not charged differential tuition fees prior to the late 1970s. During the negotiations of federal transfer payments to the provinces in 1976, the federal government suggested that introducing differential tuition fees was an acceptable way for the provinces to generate additional revenue at institutions. Over the next several years many provincial governments responded by cutting or eliminating grants that had previously been provided to post-secondary institutions for the purpose of funding international students. By 1982, all provinces except British Columbia, Saskatchewan, Manitoba and Newfoundland were charging differential tuition fees. In Ontario, fees charged were as high as $6,960.

Throughout the 1990s, tuition fees in Canada sky-rocketed for both international students and Canadian citizens as federal and provincial governments cut funding for post- secondary education. Taking into account population growth and inflation, federal cash transfers to the provinces in 2007 were 50% below 1993 levels. Cash-strapped university administrators have increasingly turned to tuition fees to cover operating expenses. In 1995, tuition fees accounted for only 21% of university revenues. In recent years, that figure had risen to over 30% in most provinces.

Governments and post-secondary institutions know that high tuition fees are unpopular with students and their families. However, because international students have little direct political influence in Canada, many provincial governments and institutional decision-makers see them as an easy target. In some provinces, governments have completely deregulated fees charged to international students so that universities are free to exploit them as a replacement for government funding. Differential tuition fees have thus become an important and politically convenient way of generating revenue for many post- secondary institutions in Canada.