Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowDays after the Trump administration announced billions of dollars in cuts to biomedical research funding, a federal judge has granted temporary restraining orders after several groups sued to block the change. Universities and research organizations are still reeling from the implications.
The National Institutes of Health said Friday that it was “vital to ensure that as many funds as possible go toward direct scientific research costs rather than administrative overhead,” and it announced that all new and existing grants would be subject to a 15 percent indirect cost rate—a drastic cut in funding for universities in the middle of the academic year. The NIH said it would amount to a $4 billion savings.
Scientists say the reduced federal support could have a devastating effect on critical research, shutting down clinical trials, labs and experiments, and preventing lifesaving breakthroughs in medicine. But critics argue the new NIH policy would bring sanity to a funding system rife with costs that should be absorbed by institutions.
On Monday, a federal judge blocked the cuts, granting a temporary restraining order to a coalition that includes the Association of American Medical Colleges that had challenged the Trump administration’s directive. Two other groups, including a group of 22 attorneys general, and a coalition of higher education associations and individual universities, also sued to halt the cuts nationally.
At the heart of the debate over support for scientific research is a not-widely-known element of the federal grant process known as the “facilities and administrative,” or indirect costs.
What are indirect costs?
Federal research grants include payments directly to the team conducting the research, and also “facilities and administrative” costs for things that indirectly support the science. Those indirect costs reimburse the university for things such as utilities for a laboratory, data processing, maintenance, patient safety, security and compliance with regulations. The federal government has been supporting research at universities for many decades. The grants don’t cover the total cost of research—universities cover the rest.
“The indirect costs are an investment by the federal government in the infrastructure of American science,” said Holden Thorp, the editor in chief of the journal Science and a former chancellor of the University of North Carolina at Chapel Hill. “ … And these institutions have planned on having that money in terms of planning how science is going to go over the next several years.”
How are the indirect cost reimbursement rates set?
Every few years, a federal agency does an audit of research costs at a site, and a rate is set that is then applied to all grants at that institution.
The rate is a percentage of just part of the direct research cost, not the entire amount.
One common misconception: If a university has a rate of 50 percent, that does not mean it spends half of its federal research dollars on overhead; the 50 percent is additional to the money spent directly on research, and goes to facilities and administrative costs to support the research.
Why are the rates different at different places?
Rates vary from school to school because of a variety of factors that affect the cost of doing research, such as infrastructure that can be more expensive in some cities compared to others.
Rates are different for private foundations because they consider more things direct costs of research. So foundations typically have lower indirect cost rates, which cannot be directly compared to the rates at universities. Experts consider this comparison one of apples to oranges.
Eli Capilouto, the president of the University of Kentucky, told the campus community Tuesday that the “the comparison between a private foundation providing a grant around research in education policy, for example, simply does not involve the same cost or cost structure as a basic science grant that could include building and lab space and all the supports that go along with that infrastructure. The complicated discovery and research our investigators perform cost more than the research often funded by private foundations.” He said the change, if enacted, would mean a $40 million cut to the university over the next year.
How much does NIH spend on research grants?
The NIH spent $35 billion in 2023 on external research grants.
Can universities spend the indirect payments on other campus costs?
No, the reimbursements must be spent on things that support the research.
Why don’t universities just pay for this stuff out of their endowments?
Universities do use their endowments, a collection of tax-exempt donations and investments, to fund research but endowments have limitations that make it difficult for schools to draw them down. Portions of endowments are restricted to uses that donors stipulate. Endowments are also designed to be a long-term resource to support students, faculty, research and operations, not savings accounts that can be raided.
While colleges use their endowments to fund research and pay salaries, the largest share of spending is financial aid for students, according to the National Association of College and University Business Officers.
There are also significant disparities in university endowments. While some schools such as Harvard and Yale universities have multibillion-dollar endowments, most other institutions have a sliver of that money.
According to the latest available data from NACUBO and the asset management company Commonfund, about 149 universities reported endowments of over $1 billion in 2024, but the median endowment of the 658 institutions that participate in the organizations’ study is valued at $243 million.
Could universities raise tuition or rely on state taxpayers to make up for the loss in NIH funding?
It is entirely possible that some schools could try to offset the loss of funding by raising tuition down the road and public research universities could plead with state legislatures for more funds. But higher education experts believe universities are more likely to dial back or shut down research in the immediate future.
Charles L. Welch, president and chief executive of the American Association of State Colleges and Universities, said university responses will be heavily dependent on financial support from the states where they are and the amount of NIH funding they receive. He said NIH funding at the state colleges and universities that his association represents varies from as low as $88,000 to as much as $246 million.
“The most immediate negative effects would likely be in the areas of interrupted research activities and reductions in personnel,” Welch said.
Kara D. Freeman, president and chief executive at the National Association of College and University Business Officers, said colleges and universities will likely seek additional support from states and the private sector to continue research projects.
Still, she said, “This decision by NIH, combined with the now growing uncertainty in many other areas of the federal-higher education partnership, will force institutional leaders to consider awful choices—continue vital research or shut down entire labs, restructure and eliminate staff, or seek other opportunities for revenue that could, as a last resort, include tuition.”
Please enable JavaScript to view this content.
It’s amazing that two guys who went to Wharton (45/47 and Musk) haven’t got a clue about indirect costs and how they have to be accounted for. They must have slept through their accounting classes.