To a college or university, tuition is a major, if not the principal, source of revenue for financing its mission. It is also the principal instrument used by a school to influence which students attend that school and, thus, the peers that a school can offer as an attraction to prospective students. Put another way, tuition plays the dual role of helping to raise funds while simultaneously serving as a mechanism for attracting the particular mix of students the school wants in advancing its mission.

The key to this dual role, as we shall see below, is that the notion of a school's “tuition” is less clear-cut than it may first appear. Although one typically associates a single number with a school's undergraduate tuition (the listed tuition), the actual prices that students pay to take classes (the net tuition) vary from student to student. Indeed, it is quite common for two students in the same major and taking identical classes to pay different net tuitions in the same way that two people sitting next to one another on a plane flight likely paid different prices for their tickets. The reasons for the differential pricing may differ, however. For the airline the price “discrimination” is simply geared to a profit-maximizing strategy, whereas for a public or private nonprofit school it is aimed at both revenue and student mix.