Universities use 60% of research money for overhead. Last year, $9 billion of the $35 billion that the National Institutes of Health (NIH) granted for research was used for administrative overhead, known as “indirect costs.”
Today, NIH lowered the maximum indirect cost rate research institutions can charge the government to 15%, above what many major foundations allow and much lower than the 60%+ that some institutions charge the government today. Effective immediately, this change will save more than $4 billion a year.
The argument for overhead, which sometimes reaches 75%, is that you must pay for the university infrastructure for each research project. So, over and over, you pay for the university. Maybe 15% is too big a cut, but given the amount of money some universities keep in a lockbox, maybe not.
How do they come up with 50-60-75%? The formula for overhead at Harvard for research projects is the indirect cost rate (IDC) multiplied by the total direct cost (TDC). The TDC is the sum of all expenses for a project, including salaries, equipment, insurance, on and off-campus activities, conferences, publications, renovations, research services, and supplies.
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While I don’t have enough knowledge to say and don’t want to throw the baby out with the bath water, I will say it’s time for everyone, including universities, to cut back. They blow money because of student loans. They have their hands out to the federal taxpayer nonstop and it has hurt them.
Can you believe that universities with tens of billions in endowments were siphoning off 60% of research award money for “overhead”?
What a ripoff! https://t.co/RRTIMKTVYN
— Elon Musk (@elonmusk) February 8, 2025
View from the University Left
Professor Carl T. Bergstrom of The University of Washington claimed in a series of posts on BlueSky that it will destroy universities, and that is the goal.
NIH “overhead” costs are typically north of 50%. As Carl Bergstrom of the University of Washington explains, the overhead rate at his University is 55%.
“That means that if I get a federal grant for $1,000,000 of direct research funding, the university receives an additional $550,000 to cover operating expenses and staff.”
The claim is you can’t re-create a medical lab whenever you get a new grant. You have to have facilities and staff on hand to keep things ongoing.
This sounds like a big cash cow for universities, but I have no idea. Dr. Bergstrom says it will end all US Research, and it’s an overreaction to DEI.
Bergstrom’s Blue Sky Posts
Today, the NIH director issued a new directive slashing overhead rates by 15%. I want to provide some context on what that means and why it matters.
The NIH overhead cut doesn’t just hurt universities. It’s deadly to the US economy. The US is a world leader in tech due to the ecosystem that NIH and NSF propel. It drives innovation for tech transfer, creates a highly skilled sci/tech workforce, and fosters academic/industry cross-fertilization.
While NSF and NIH indeed have a mission to fund specific research innovations via grantmaking, they do a lot more than that. Their principal role is to support a scientific ecosystem in the United States that includes everything from education and training to infrastructure and communication.
This is a lot of support for the Universities – 75% overhead.
To this end, they support the institutions where grantees work by paying facilities and administration (F&A) costs to research institutions such as universities. These costs above and beyond the direct amount of the grant are essential to fund university infrastructure and personnel. These F&A costs, colloquially known as “overhead,” are typically north of 50%. At the UW, for example, the overhead rate is 55%. That means that if I get a federal grant for $1,000,000 of direct research funding, the university receives an additional $550,000 to cover operating expenses and such.
Other schools may have even higher overhead rates. Harvard’s is around 69%. This new order slashes that percentage to a maximum of 15%. This means cutting one of the most important sources of university funding nationwide by 75% or more. Universities cannot function with this scale of cut.
The policy does not just affect funding going forward. All existing NIH grants will have their indirect rates cut to 15% as of today, the date of issuance. For a large university, this creates a sudden and catastrophic shortfall of hundreds of millions of dollars against already budgeted funds.
Here comes the conspiracy theory:
This order did not come out of nowhere. It was a core component of Lindsey Burke’s Dept. of Education chapter in the Project 2025 report. (Private foundations typically pay 10-15% overhead rates, and the logic of this comparison is made explicit in today’s Supplemental Guidance from NIH.)
It is difficult to overstate what a catastrophe this will be for the US research and education systems, particular in biomedical fields. It is deliberate and wanton devastation entirely out of scale with any concern about DEI activities on campuses. The goal is destroy US universities.
Bergstom’s Sources: NIH NOT-OD-25-068.html and Statnews.com
Last year, $9 billion of the $35 billion that the National Institutes of Health (NIH) granted for research was used for administrative
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