The Subsidy Trap
Why Non-Traditional Revenue Rarely Fixes the Core
There is a question that almost never gets asked in higher education strategy conversations, and it is probably the most important one: are the markets we are chasing actually more reliable than the one we are leaving behind?
For the past several years, the answer most institutions have acted on is yes. Online graduate programs, microcredentials, non-traditional learners, and employer partnerships have become the default response to financial pressure at small residential colleges. The logic is intuitive. If the core model is struggling, build revenue around it.
We decided to look at whether that logic holds up.
What we found surprised us. The markets that institutions are most aggressively pursuing right now are, by almost every measure, the most volatile ones available to them. And the model they are treating as the liability is, in most cases, their most defensible asset.
Adult learner enrollment at private four-year institutions did not grow last year. It fell 28%. New undergraduate students over 25 declined 15.5% nationally, representing more than 35,000 fewer students in a single year. That is not a cyclical blip. It’s a decade-long structural contraction that most enrollment strategies are not accounting for.
Fully online program growth has normalized sharply from its pandemic peak. Online graduate enrollment follows economic cycles in ways that make it genuinely difficult to plan around, and it is increasingly dependent on international student pipelines that are now contracting under both policy and economic pressure. The OPM infrastructure many institutions relied on to enter these markets is collapsing — 147 contracts terminated in a single year, new partnerships down 53%.
And microcredentials, often cited as a quick win, operate in a market where employer relationships are consolidating around LinkedIn Learning, Coursera, and platforms built specifically for that purpose.
Meanwhile, private nonprofit four-year institutions saw a 1.6% residential undergraduate enrollment decline in Fall 2025. Not 28%. Not a sudden reversal. A modest, incremental shift in a market that is regional, relationship-driven, and structurally difficult for large competitors to replicate.
The report we are releasing today, The Subsidy Trap: Why Non-Traditional Revenue Rarely Fixes the Core, is not an argument against diversification. Diversification has a genuine role in a well-constructed institutional strategy. What it is an argument against is the unexamined assumption that auxiliary markets are inherently more reliable than the core, and that sustainability lies primarily in building around a 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. It leaves the model that is actually most defensible underinvested. And when the auxiliary markets do not deliver what the plan projected — and the data suggests they often will not — the institution finds itself in a worse position than before, with a weakened core and fragile pipelines it does not fully control.
The institutions navigating this well are asking a different question. Not how do we build around the core, but whether the core was ever as broken as the narrative assumed — and what it would take to run it well.
The Subsidy Trap
Why Non-Traditional Revenue Rarely Fixes the Core
There is a question that almost never gets asked in higher education strategy conversations, and it is probably the most important one: are the markets we are chasing actually more reliable than the one we are leaving behind?
For the past several years, the answer most institutions have acted on is yes. Online graduate programs, microcredentials, non-traditional learners, and employer partnerships have become the default response to financial pressure at small residential colleges. The logic is intuitive. If the core model is struggling, build revenue around it.
We decided to look at whether that logic holds up.
What we found surprised us. The markets that institutions are most aggressively pursuing right now are, by almost every measure, the most volatile ones available to them. And the model they are treating as the liability is, in most cases, their most defensible asset.
Adult learner enrollment at private four-year institutions did not grow last year. It fell 28%. New undergraduate students over 25 declined 15.5% nationally, representing more than 35,000 fewer students in a single year. That is not a cyclical blip. It’s a decade-long structural contraction that most enrollment strategies are not accounting for.
Fully online program growth has normalized sharply from its pandemic peak. Online graduate enrollment follows economic cycles in ways that make it genuinely difficult to plan around, and it is increasingly dependent on international student pipelines that are now contracting under both policy and economic pressure. The OPM infrastructure many institutions relied on to enter these markets is collapsing — 147 contracts terminated in a single year, new partnerships down 53%.
And microcredentials, often cited as a quick win, operate in a market where employer relationships are consolidating around LinkedIn Learning, Coursera, and platforms built specifically for that purpose.
Meanwhile, private nonprofit four-year institutions saw a 1.6% residential undergraduate enrollment decline in Fall 2025. Not 28%. Not a sudden reversal. A modest, incremental shift in a market that is regional, relationship-driven, and structurally difficult for large competitors to replicate.
The report we are releasing today, The Subsidy Trap: Why Non-Traditional Revenue Rarely Fixes the Core, is not an argument against diversification. Diversification has a genuine role in a well-constructed institutional strategy. What it is an argument against is the unexamined assumption that auxiliary markets are inherently more reliable than the core, and that sustainability lies primarily in building around a 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. It leaves the model that is actually most defensible underinvested. And when the auxiliary markets do not deliver what the plan projected — and the data suggests they often will not — the institution finds itself in a worse position than before, with a weakened core and fragile pipelines it does not fully control.
The institutions navigating this well are asking a different question. Not how do we build around the core, but whether the core was ever as broken as the narrative assumed — and what it would take to run it well.
