What the Decision Means for University Research Labs

The Trump administration's recent decision to abandon its push for a 15% cap on indirect costs—or overhead expenses—in National Institutes of Health (NIH) grants marks a pivotal win for higher education institutions across the United States. Announced effectively on April 8, 2026, when the Department of Justice let the Supreme Court appeal deadline lapse without filing, this retreat ends a 14-month legal saga that had universities on edge. Research universities, which rely heavily on federal funding for biomedical and health-related studies, can now breathe easier, maintaining their negotiated facilities and administrative (F&A) rates that typically range from 30% to over 60% of direct grant costs.

This relief comes after multiple court injunctions, including a permanent nationwide block affirmed by the U.S. Court of Appeals for the First Circuit in January 2026, which ruled the cap violated congressional spending directives. The move preserves billions in essential funding for lab maintenance, compliance staff, and infrastructure—costs that enable groundbreaking research but cannot be directly tied to specific projects.

Without this resolution, institutions faced shortfalls that could have led to widespread lab closures and staff reductions. Public universities stood to lose nearly $3 billion annually, while private ones faced over $2.25 billion in cuts, according to analyses of FY2024 data.

Understanding Indirect Costs in University Research

Indirect costs, often called Facilities and Administrative (F&A) rates, cover the behind-the-scenes expenses that make research possible. These include building utilities, lab safety compliance, grant administration, and institutional support services like human resources and IT infrastructure shared across multiple projects. Unlike direct costs—salaries for principal investigators, equipment, or animal subjects—indirect costs are not project-specific but essential for the ecosystem.

Universities negotiate these rates every few years with federal agencies like NIH, based on actual audited expenses. The NIH-wide average hovers around 27-28%, but for higher education institutions, it's closer to 37%, with top research powerhouses like Johns Hopkins at 63.7% and Yale at 67.5%. This variation reflects differences in aging facilities, research intensity, and location costs.

• Facilities: Lab renovations, HVAC systems for temperature-controlled experiments, and hazardous waste disposal.
• Administrative: Institutional Review Board (IRB) oversight, biosafety training, and financial reporting required by federal regulations.
• Departmental: Shared equipment maintenance and technical support staff.

Critics, including the administration, argued these rates were bloated, with some exceeding 50%, diverting funds from 'real science.' Proponents countered that under-recovery already burdens universities, subsidizing federal research with tuition or endowments.

The Origins of the 15% Cap Proposal

The cap stemmed from the Trump administration's fiscal conservatism, targeting what it viewed as inefficient overhead in a $47 billion NIH budget. On February 7, 2025, NIH issued Notice NOT-OD-25-068, imposing a flat 15% rate on all grants—new and existing—to save approximately $4 billion yearly. This echoed earlier Trump-era proposals (e.g., 10% in 2018) but was more aggressive, applying retroactively.

Similar caps hit NSF (May 2025), DoD, and DOE, sparking coordinated lawsuits from the Association of American Universities (AAU), Association of Public and Land-grant Universities (APLU), and 22 state attorneys general. Courts ruled these violated the Federal Acquisition Regulation (FAR) and congressional riders in appropriations bills mandating status quo rates.

The administration framed it as taxpayer relief, but universities warned of cascading effects: frozen grants, delayed projects, and talent flight to industry or abroad.

Legal Battles and Key Court Victories

The saga unfolded rapidly:

1. February 2025: NIH notice triggers lawsuits.
2. March-April 2025: Federal judges issue temporary and permanent injunctions in Massachusetts, blocking nationwide.
3. January 2026: First Circuit affirms, unanimous panel deems cap 'unlawful.'
4. April 2026: DOJ skips SCOTUS petition.

Similar blocks at NSF and DoD ensured broad relief. Congress reinforced via FY2026 spending bills, prohibiting rate changes.

Photo by History in HD on Unsplash

Financial Relief: Billions Preserved for Higher Ed

Projections painted a dire picture: a $5.24 billion hit to institutions of higher education (IHEs) in FY2025 alone under the capitated scenario. Public universities, less endowed, faced $2.99 billion losses; privates $2.25 billion. States like California, New York, and Massachusetts—research hubs—would suffer most per capita.

Every NIH dollar generates $2.56 in local economic activity. The cap risked 2,000 fewer grants, per Senate estimates, stalling cancer, Alzheimer's, and diabetes research.Health Affairs Scholar analysis highlights disproportionate harm to public institutions reliant on these funds for core operations.

Top recipients like Johns Hopkins ($800M+ annual indirects) dodged massive shortfalls, averting tuition hikes or endowment raids.

Risks Averted: Labs, Jobs, and Innovation Protected

Indirect funds sustain research infrastructure. A cap would have forced:

• Lab closures and deferred maintenance.
• Staff cuts in compliance, safety, and admin roles.
• Reduced investigator awards, hitting early-career faculty hardest.
• Innovation slowdown, as U.S. unis lead global research output.

Universities like UCLA recovered suspended grants post-rulings, resuming vital work. The relief bolsters U.S. competitiveness against China, where research spending surges.

University and Association Reactions: Relief with Caution

Higher ed leaders hailed the outcome. AAU President Barbara Snyder called it 'a victory for science,' while APLU emphasized sustained innovation.ACE statement noted the cap's illegality. However, vigilance persists amid FY2027 budget proposals eyeing deeper NIH cuts ($5B).

Stakeholders like the Alzheimer's Association praised the block, warning of slowed therapies.

The FAIR Model: Path Forward for Transparency

In response, the Joint Associations Group proposed the Financial Accountability in Research (FAIR) model, shifting from percentages to itemized costs: performance, support, and operations. This dollar-for-dollar approach enhances accountability, potentially via FY2027 legislation. Universities see it as superior to caps, though implementation needs 2+ years.

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Broader Implications for U.S. Higher Education

This saga underscores tensions between fiscal austerity and research investment. With NIH funding ~$47B, indirects comprise ~28% ($9.3B FY2024). Relief stabilizes budgets but highlights vulnerabilities: over-reliance on federal grants (60% of academic R&D).

Private funders like HHMI cap at 15%, pressuring diversification. Faculty retention improves as labs stay open, aiding postdoc and researcher jobs.

Future Outlook: Budget Battles and Strategic Shifts

While the cap fight ends, Trump's FY2027 budget proposes NIH cuts, plus DEI-linked terminations. Universities pivot to philanthropy, industry partnerships, and efficiency via FAIR.

Actionable insights:

• Audit F&A rates for optimization.
• Diversify funding: industry, states, endowments.
• Advocate for FAIR adoption.
• Prepare for compliance amid scrutiny.

U.S. higher ed remains resilient, poised for discovery if federal support endures.