Asked to Apply to another Program I recently received a rejection letter from one of my top colleges for graduate studies. In addition to the standard rejection letter(for Program 1), I got another note from the chair of another program(Program 2) at the same university, suggesting that I opt for that program.

The difference between the two programs is that Program 1(which I was rejected from) usually gives out funding while Program 2(while being identical in all other ways) strictly says no funding. Is this usual in US colleges? I always thought that if you're going to get an admit without funding, you will at-least get an admit letter or is there any other reasoning behind this?
There is no golden rule that I've heard of that since you're not funded that you would be automatically accepted. There are not-for-profit and for-profit institutions, and each may receive public and/or private funding to do x, y, and z. 

Sounds to me you were going for a program where you'd receive a stipend, and are being coerced to apply to the program that you would have to pay out-of-pocket (not really clear from the way you wrote it above). In any case, there are some things to consider:


How competitive is the program?
What about your transcripts or personal profile can you improve?
How about applying to more than one school?
If you received an offer, should you take it and see if you can receive a stipend in the near future?


You haven't provided much information, yet it will be hard to tell you what to do because there's an absence of the representation of what it is you want to do, and how much you want it. If it's something you've already spent your entire adult life to work on and have the acceptance letter, maybe it's worth considering taking the opportunity. Conversely, if you're right out of school and would benefit from some work experience and improvements to your transcript then it may be worthwhile to take a step back and try again soon.