Update, 10 February, 6 p.m.: In response to a lawsuit filed by 22 states, a federal judge today blocked NIH from imposing a new indirect costs payment rate of 15% on all new and existing grants. The judge has scheduled a 21 February hearing on the issue.
In a Friday night move that quickly drew howls of protest from the U.S. biomedical research community and a legal challenge, President Donald Trump’s administration announced it is immediately reducing by at least half the so-called indirect cost payments the National Institutes of Health (NIH) makes to universities, hospitals, and research institutes to help cover facilities and administrative costs.
A 15% indirect cost rate will now apply to all new and existing grants, NIH said in a memo from its director’s office. Typically, about 30% of an average NIH grant to an institution is earmarked for indirect costs, according to NIH’s notice, but some universities get much higher rates. In 2023, NIH, the world’s largest funder of biomedical research, spent nearly $9 billion on indirect costs; the change would likely leave research institutions needing to find billions of dollars from other sources to support laboratories, students, and staff.
“It is … vital to ensure that as many funds as possible go towards direct scientific research costs rather than administrative overhead,” NIH wrote in the memo. The new rate brings NIH into line with the maximum indirect cost rates allowed by private foundations, NIH stated, and is higher than the minimum 10% indirect cost payment NIH says it is required to provide. “This rate will allow grant recipients a reasonable and realistic recovery of indirect costs,” the memo stated.
The reaction from university groups and researchers has been swift and overwhelmingly negative, and some are already arguing the NIH action is illegal. Twenty-two states quickly filed a lawsuit.
“This is a surefire way to cripple lifesaving research and innovation,” said a statement from COGR, which tracks federal policy for major universities and medical research centers. “America’s competitors will relish this self-inflicted wound. We urge NIH to rescind this dangerous policy before its harms are felt by Americans.”
Alondra Nelson of the Institute for Advanced Study, former head of the White House Office of Science and Technology Policy, lamented on Bluesky what she said would amount to a “generational restructuring of the US research and development ecosystem.” She added that “This funding shift will not only reduce US research leadership, it will put working people out of work and reduce healthcare access.”
“This would have the most dramatic alteration on research in the United States that one has seen in decades,” says virologist Larry Corey of the Fred Hutchinson Cancer Center, a former leader of the institution who has managed its $2 billion budget. “No one’s saying that research costs are perfect,” he adds, but indirect costs are critical to paying for research infrastructure. Private foundations that pay lower indirect costs can do so only because universities are making up for any shortfall, Corey says.
The abrupt change represents “a nuclear bomb on university budgets,” says Morgan Polikoff, an education researcher at the University of Southern California. “I mean, listen, it doesn’t take a rocket scientist to figure this out. They’re just trying to hurt universities.”
This is not the first time Trump has taken aim at reducing indirect costs, which the federal government has been adding to research grants since 1947. In 2017, his first administration proposed reducing NIH’s indirect cost rate to 10% in a budget request to Congress, but lawmakers blocked the change. Slashing NIH’s indirect costs rate was also proposed in Project 2025, a blueprint for an incoming Republican administration that Trump once disavowed but has since embraced.
Traditionally, each university negotiated its own overhead rate—including one rate for facilities and one for administration—with the government every few years. Rates vary widely because of geography—costs are higher in urban areas—and because research expenses differ. Biomedical science, for example, often requires animal facilities, ethics review boards, and pricey equipment that aren’t needed for social science. But universities have long complained that even the negotiated rates don’t cover true research costs.
Both Republican and Democratic policymakers, in contrast, have tried to rein in overhead payments. Most notably, in 1994 the U.S. government capped the administration rate for universities at 26% after several instances in which universities were found to have applied the money for purposes outside the scope of the grant. Former President Barack Obama’s administration also floated setting an unspecified flat rate, which economists said would increase efficiency and reduce paperwork.
Many who advocate for cutting NIH’s indirect cost rate have long argued that universities are willing to accept lower rates from philanthropic foundations. Today’s NIH notice, for example, notes the Bill & Melinda Gates Foundation limits indirect costs to 10%, whereas the David and Lucile Packard Foundation sets the ceiling at 15%. But such reasoning is based on “perverse logic,” Corey says, because foundations use their funds to increase the productivity of research infrastructure already paid for by the federal government. And universities say they are often willing to accept foundation grants that carry low overhead rates because those grants amount to a relatively small fraction of their funding.
Some aspects of the new policy aren’t clear. One question, Polikoff says, is whether researchers who can no longer claim certain costs as indirect could roll them into the direct costs of their research. The NIH memo notes that, in 2023, it spent roughly $26 billion on direct research costs, in addition to the $9 billion in indirect costs. (Some observers noted signs that the memo was not written by experienced NIH staff. For example, it concludes from a 2021 budget document that the average indirect cost rate has hovered at about 27% to 28% over time. In fact, indirect costs are calculated as the portion of direct costs paid as indirect costs and the average is closer to 39%.)
It is not clear whether institutions could persuade a court to block the new rate. The NIH memo cites federal rules, adopted nearly a decade ago, that appear to empower the agency to impose a new rate. But COGR says the move “contradicts current law and policy.” Several observers, including Senator Patty Murray (D–WA), who sits on the Senate panel that approves NIH’s budget, noted that language included every year since 2018 in those spending bills prohibits the agency from modifying negotiated indirect cost rates.
Universities immediately began to mull lawsuits and the first was filed on 10 February by the attorneys general of 22 states. It argues the effects of slashing the rate “will be immediate and devastating,” resulting in layoffs, suspended clinical trials, and disrupted research. The policy is “arbitrary and capricious” and therefore violates federal law for implementing new regulations, the suit states.
Barring a court restraining order, it also remains to be seen whether the research community could persuade Congress, currently controlled by Republicans, to block NIH’s change.
But major academic medical centers in states that voted for Trump stand to lose tens of millions, and local leaders let their displeasure be known. Alabama’s junior senator, Katie Britt (R), told Al.com that “a smart, targeted approach is needed in order to not hinder life-saving, groundbreaking research at high-achieving institutions like those in Alabama.”
The University of Alabama at Birmingham (UAB), which reports a 48.5% indirect cost rate, is the largest employer in the state and by one accounting stands to lose $105 million. “As it relates to our state’s GDP [gross domestic product], as it relates to our economic growth, as it relates to our future … NIH research dollars play a massive, significant role,” Birmingham Mayor Randall Woodfin told AL.com. “Those in the UAB family have a right to be concerned.”
Update, 10 February, 1:35 p.m.: This story has been updated.