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The National Institutes of Health’s late Friday announcement sent shock waves through higher education.
The National Institutes of Health’s plan to cut funding for colleges’ “indirect costs” of conducting medical research, which includes hazardous waste disposal, utilities and patient safety, could cost institutions billions.
The policy change, effective Monday and announced late Friday, set off alarm bells throughout higher education over the weekend. If it moves forward unchallenged, colleges will have to cut their budgets, raise costs for students or reduce research activities to make up the difference. Advocates and researchers also warned that the cuts would undermine key research life-saving medical advancements.
“While this retrenchment may seem like a good deal for taxpayers, the truth is that without a federal partner to share some of the costs of innovation, ground-breaking research, and life-changing medical advances, these costs will fall directly and indirectly on current students or bring this vital work to a halt,” Kara Freeman, president of National Association of College and University Business Officers, said in a statement.
The National Institutes of Health is one of the largest sources of funding for research at the universities and colleges and has supported breakthroughs in medical technology and treatments for diseases like cancer and Alzheimer’s. In fiscal year 2024, the agency sent about $26 billion to more than 500 institutions of higher education or research centers affiliated with colleges and universities. About $7 billion of that went to the indirect expenses—a source of funding that universities argue is crucial but still doesn’t cover the full cost of what it takes to conduct research.
NIH officials wrote that they want to cap indirect expenses at 15 percent of the direct research costs, saying that they wanted to ensure more funds were going toward “direct scientific research costs.” The policy change applies to any new and existing grants.
Last year, $9B of the $35B that the National Institutes of Health (NIH) granted for research was used for administrative overhead, what is known as “indirect costs.” Today, NIH lowered the maximum indirect cost rate research institutions can charge the government to 15%, above… pic.twitter.com/FSUYpEGKsr
— NIH (@NIH) February 7, 2025
Currently, institutions receive, on average, 27 to 28 percent, though some colleges have negotiated reimbursement rates greater than 50 percent.
To put that in perspective, if a college or university received a $5 million grant, a 28 percent reimbursement would mean an additional $1.4 million to pay for related costs, such as renting space for a lab, though they could negotiate even higher. But, under the new cap, an institution with that same $5 million grant would be reimbursed up to $750,000 to pay for related costs.
The NIH estimates the cap, which is comparable to what private foundations pay, will save about $4 billion. An Inside Higher Ed analysis of fiscal year 2024 grant data shows that colleges would lose about $4.3 billion in NIH reimbursements under that cap.
‘A Self-Inflicted Wound’
Throughout the weekend, academics, scientists and higher education advocates, among others, decried the plan as they shared data and anecdotes on social media and in statements about the importance of federally funded research, which has made the United States a leader in medicine. They also pointed to the role research universities play in supporting local economies and creating jobs. Some worried that the cuts would mean some medical schools or research universities would have to close or reduce their footprint. (About half of NIH funding in fiscal year 2024 went to medical schools.)
“It is difficult to overstate what a catastrophe this will be for the US research and education systems, [particularly] in biomedical fields,” Carl Bergstrom, a biology professor at the University of Washington, posted on BlueSky. “The goal is [to] destroy US universities.”
Higher education associations representing research universities, medical schools, business officers and others urged the Trump administration to reverse course. Some higher ed groups and Democratic lawmakers have argued that the cap is illegal. A lawsuit challenging the cap is expected to be filed Monday, the Washington Post reported.
Ted Mitchell, president of the American Council on Education, said the decision was “shortsighted, naïve and dangerous.”
“It will be celebrated wildly by our competitors, who will see this for what it is—a surrender of U.S. supremacy in medical research,” Mitchell said. “It is a self-inflicted wound that, if not reversed, will have dire consequences on U.S. jobs, global competitiveness and the future growth of a skilled workforce.”
Likewise, the Association of American Medical Colleges said in a statement Saturday that the government’s support of indirect costs “allows medical research to happen,” and the cap will mean less research.
“Lights in labs nationwide will literally go out,” the statement said. “Researchers and staff will lose their jobs. As a result, Americans will have to wait longer for cures and our country will cede scientific breakthroughs to foreign competitors. These are real consequences—slower scientific progress, longer waits for cures, fewer jobs.”
Republicans and President Trump have long sought to limit funding for indirect costs. The latest proposal is similar to a recommendation included in Project 2025, the conservative playbook for the second Trump administration that the president has disavowed, though some of the project’s key contributors are working for the administration. Project 2025 authors said the cap would “reduce federal taxpayer subsidization of leftist agendas.”
Several researchers are worried that the rate cap could extend to other federal agencies such as the National Science Foundation and the Energy Department.
The policy change is the latest disruption to federal research since Trump took office Jan. 20. Over the past three weeks, the administration has temporarily halted grant reviews and left researchers wondering how a suite of executive orders banning federal funding for DEI, “gender ideology” and other issues could affect funding decisions.
Frank Fernandez, an associate professor of educational leadership and policy analysis at the University of Wisconsin at Madison, said federal funding of research allows faculty to pursue projects that aren’t “immediately profitable.”
“This frees universities up to do work that may not make money in the short term but that has long-term potential to be groundbreaking and transformational,” he said.
Fernandez added that it’s also cheaper for the federal government to sponsor research at universities versus doing the research itself or paying the corporate sector. He and others worry that the cut will hurt America’s ability to compete with China, which was a key goal of the federal CHIPS and Science Act, which passed in August 2022.
“As a strategy, it amounts to ceding American leadership in global science and innovation to China,” he said.
‘Financial Bombshell’
For individual colleges, the 15 percent cap would mean losses ranging from nothing to $136 million, according to the Inside Higher Ed analysis of fiscal year 2024 data complied by Blue Ridge Institute for Medical Research.
The University of Michigan at Ann Arbor, which had an indirect rate of 56 percent, is among the institutions that would lose the most money under the change.
University officials said Saturday that the “change would result in a significant decrease in the amount that [the university] receives from the federal government to conduct vital research.” It received nearly $740 million from the NIH in fiscal year 2024—$202 million of which went to indirect costs, according to the Blue Ridge data.
The Ann Arbor campus’s budget for fiscal year 2024 totaled just over $5 billion, according to budget documents.
Neal Hutchens, a professor of education at the University of Kentucky, described the policy change, if it remains in place, as a “financial bombshell” for many colleges.
“Given the amount and importance of NIH funding, it will be difficult, really impossible, for colleges that heavily rely on it to make up this funding,” he wrote in an email. “Some state governments or additional funding from private agencies might be sought by institutions to make up some of this money, but I don’t see this happening easily, not based on the amount of funding from NIH and other federal agencies that may soon be subject to similar restrictions on indirect costs. We are talking about billions of dollars in funding that realistically colleges aren’t going to be able to make up from other sources.”
Although the NIH announcement about the cap highlighted wealthy colleges with large endowments, a range of colleges with varying resource levels receive NIH funding. So while some will be able to absorb the hit, others won’t. On average, a university or medical school that received funding in fiscal year 2024 would lose about $9.6 million under the policy change, though 26 would lose $50 million or more.
The University of Wisconsin at Madison said Saturday evening that because NIH funding is the university’s largest source of federal support, the cuts will “significantly disrupt vital research activity.” The university received $411 million from the NIH in fiscal year 2024, $108 million of which went toward indirect costs, according to the Blue Ridge data. Under the change, the university would lose $62.7 million.
“Drastic reduction to this funding will not only disrupt the day-to-day important work of the university but will ultimately harm the livelihoods of real people across Wisconsin and the country, harm the innovation economy and will make our nation less competitive,” the statement said.
