A couple of reasons:
1. The '93 season was the end of the Vinny Cerrato era of recruiting. The Last Great ND OLine, Taylor, Zataveski, Ruddy, Leahy, and Norman, played their last season in '93. During Cerrato's reign as a full time Recruiting Coordinator under Holtz, ND dominated recruiting regardless of position. ND churned out #1 Classes. Cerrato was so successful the Coaches Association proposed a rule, accepted by the NCAA, limiting teams to 9 assistants each of whom was required to be an active hands-on position coach. In addition only the head coach and the 9 assistant coaches were permitted to do off-campus recruiting. Known as the Cerrato Rule, it eliminated the possibility of a full time recruiter evaluating talent on the road and building bonds with prospects the way Cerrato did. Holtz used to joke that the only member of his staff who could have a tan was Cerrato. He expected Cerrato to be constantly on the road, outdoors, evaluating talent. Holtz expected position coaches to be indoors watching film or in meetings when they weren't on the field. During the '88 season when ND was courting top QB prospect Rick Mirer, Cerrato called Mirer during a game, live on national TV, and told him which play would be run next while the play was being sent in to the huddle. The NCAA banned communications with recruits during games eliminating another Cerrato tool.
Without the ace recruiter ND's recruiting fell from dominating to good. But not good enough to maintain 11 or 12 wins a season. By '94 ND lacked the "reloading" depth they had since '88. Key injuries could not be plugged in from the 3 deep automatically anymore. The two deep now had hugh holes. During the late 80's the assistants got accustomed to Cerrrato doing the recruiting. They didn't have to then and it showed when Cerrato left.
Had Cerrato not been forced out by the NCAA rule, ND would have "retired" him. Cerrato and Holtz had major battles with Rooney in Admissions over transcripts being withheld to the 11th hour trying to finesse admissions, and other academic issues. The Administration was not happy. After Cerrato left, Holtz's battle with Admissions continued reaching a peak in '95 when Rooney rejected two 5 star recruits who sent in LOIs but had NEVER been cleared academically by Admissions. Both were barred from becoming ND students for academic deficiencies. One went to FSU and got kicked out before becoming an AA WR at Marshall. The other became a AA RB for Miami.
2. The NCAA 85/25 rules went into effect during the Holtz era and impacted his last few seasons depth in additon to the dearth of Cerrato talent. It wasn't just a talent issue but a lack of bodies. Holtz had trouble maintaining the strength of 85 with ND admissions, academics, ResLife, and 5th Year Faculty Approval process. With the higher scholarship limits he had some room to maneuver but when the number dropped to 85 he had problems. (As had the coaches who followed him.)
3. Holtz realized that the Triple Option Offense had run its course. DCs with time to prepare learned how to handle the Option. OSU's Finkes and Vrabel gave a textbook on-field demonstration in '95 and '96. You could still win 8 or 9 games against a softer schedule with the Option but you weren't going to win a bowl game when the opponent had 3 or 4 weeks to prepare. And ND was going to play against weaker teams in a bowl. Holtz lost his last two bowl games and ND didn't go bowling in '96 when he "retired". After his resurrection at South Carolina, he didn't install an option defense. He went Pro Set.
Holtz also learned that it was increasingly more difficult to get prime time Skill Players to play in the Triple Option Offense. They wanted to play in a Pro Set to develop them for the NFL. WRs wanted to catch 50-100 balls a year every year. Not average 3 or 4 a game while throwing 60+ blocks a game. QBs wanted to throw 15 -25 passes a game to develop for the NFL. Triple Option running QBs weren't considered viable NFL QBs.