For years, the most common financial narrative at small residential colleges has followed a familiar arc: the undergraduate model is under pressure, non-traditional revenue is the path forward and sustainability depends on building around the core rather than fixing it. It’s worth asking whether that narrative is actually supported by the data.
New research from Rize Education, The Subsidy Trap: Why Non-Traditional Revenue Rarely Fixes the Core, examines the volatility and competitive dynamics of the markets small colleges are increasingly depending on — and what the data shows about the model they are leaving behind.
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The assumption driving the strategy
When enrollment pressure mounts, the strategic response at most institutions follows a predictable pattern: launch online graduate programs, invest in microcredentials, pursue non-traditional learner markets, or seek employer partnerships. The logic is intuitive. If the core is struggling, build revenue around it.
The research suggests it doesn’t.
Adult learner enrollment at private four-year institutions fell 28% year-over-year in Fall 2025 (National Student Clearinghouse Research Center, Final Fall Enrollment Trends, January 2026). Across all four-year institutions, new undergraduate students over 25 declined 15.5%, representing more than 35,000 fewer students in a single year. IPEDS data confirms this is not a pandemic-era anomaly. Adults enrolled at four-year institutions declined from approximately 1.5 million in 2013 to 1.2 million in 2023 — a decade-long structural contraction that most enrollment strategies are not accounting for (IPEDS, U.S. Department of Education).
Online and graduate markets carry compounding risks
The fully online enrollment story is similarly complicated. Between 2020 and 2022, two-thirds of institutions added online programs in anticipation of sustained demand growth, only to see online participation rates fall from 59% of students in fall 2021 to 53% by 2022–23 (Inside Higher Ed, “Online College Enrollment Continues Post-Pandemic Decline,” January 2024). Primarily online institutions saw a 1.6% enrollment decline in Fall 2025, an unusual reversal after years of growth (National Student Clearinghouse Research Center, Final Fall Enrollment Trends, January 2026).
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Graduate programs, often the flagship non-traditional revenue bet for small colleges, carry their own structural vulnerabilities. Overall graduate enrollment declined 0.3% in Fall 2025, driven in part by a 5.9% drop in international graduate students — a pipeline that had grown roughly 50% since Fall 2020 and is now contracting under economic and policy pressure (National Student Clearinghouse Research Center, Final Fall Enrollment Trends, January 2026). Graduate enrollment has historically followed economic cycles, making it a fragile foundation for long-term financial planning (Higher Ed Dive, January 2026).
The OPM infrastructure many institutions relied on to enter these markets is contracting as well. New OPM partnerships dropped 53% from 2023 to 2024 and 147 existing contracts were terminated in 2023 alone (Inside Higher Ed, OPM Market Report, October 2024). Institutions entering these markets today face higher marketing costs, more sophisticated competition and thinner margins than those who entered even five years earlier.
The market small colleges are underestimating
Against that backdrop, private nonprofit four-year institutions saw a 1.6% residential undergraduate enrollment decline in Fall 2025 — not a sudden reversal, but a modest, incremental shift in a market that is regional, relationship-driven and structurally difficult for large competitors to replicate (National Student Clearinghouse Research Center, Final Fall Enrollment Trends, January 2026).
The strengths of the small college experience — close faculty relationships, defined community and immersive learning — remain genuinely difficult for large or fully online institutions to reproduce at scale. What has eroded is not the value of those experiences. It is the alignment between them and the operating models used to deliver them. That is a solvable problem. Structural revenue volatility in national enrollment markets is not.
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A different question worth asking
The Subsidy Trap is not an argument against diversification. Non-traditional revenue has a genuine role in a well-constructed institutional strategy. What it challenges is the unexamined assumption that auxiliary markets are inherently more reliable than the core and that sustainability lies primarily in building around the residential model rather than strengthening it.
That assumption, accepted too quickly, quietly shapes every resource allocation decision an institution makes. It redirects strategic energy outward and leaves the most defensible asset underinvested. When auxiliary markets do not deliver what they projected — and the data suggests they often will not — the institution finds itself with a weakened core and fragile pipelines it does not fully control.
The institutions navigating this well are asking whether the core was ever as broken as the narrative assumed and what it would actually take to run it well.
Download the full report to explore the findings in depth, or schedule a conversation with the Rize team to discuss what this means for your institution’s strategy.