The National Institutes of Health (NIH) give billions of dollars in grants annually to professors and researchers to support important medical research. But in recent years, more than one-fourth of the value of these grants has gone not to researchers but to universities’ overhead costs. In response, the NIH has decided to cap these “indirect costs” at 15 percent of each grant.
This seemingly bureaucratic move has prompted outrage from universities. One researcher calls it a “death sentence for academic institutions,” claiming that it “destroys the U.S. as a global leader in research” and “will devastate local economies.”
To the contrary, the cap on overhead is the right move. It will reduce university administrative bloat, save taxpayers money, and improve medical research.
Unlike direct costs—tied to specific research activities—indirect costs take the form of nebulous “facilities and administrative” expenses. The vagueness creates opportunities for cost padding and questionable expenditures. No cap currently exists on facilities expenditures, for example, offering universities “few, if any, incentives for controlling these costs,” the Government Accountability Office has said. Similarly, the GAO notes that the lack of a reimbursement limit for interest expenses encourages universities to borrow more and build more than they need for research.
Indirect costs have also risen more rapidly than direct costs, according to the GAO. In 2023, NIH data showed that around 26 percent of its annual research funding was allocated to indirect costs—amounting to nearly $9 billion. Some American research institutions now charge indirect costs totaling over 60 percent of their grants.
The current approach allows universities to build up bureaucracies that hinder, rather than help, researchers. The cap, by contrast, will help make these institutions leaner and more efficient.
Institutions that no longer get huge grants for overhead will need to innovate, such as using digital trial-management platforms, which can speed up clinical trial timelines and reduce costs. The cap will also help ensure transparency and accountability in federal spending. If more funding is moved to direct costs, researchers and universities will have to document specific uses and justify them.
For smaller universities, the new policy offers a chance to compete more effectively for NIH grants. They will no longer face a structural disadvantage compared with wealthier institutions that have leveraged high indirect costs to build up their scientific capital and laboratories. More grants to smaller institutions will grow the number of trial sites and improve access to clinical trials for populations previously left behind, especially in rural areas. This will help ensure medical research is available to all.
Most importantly, the NIH’s new emphasis on efficiency and transparency will strengthen public trust in research. As more taxpayer dollars get channeled toward real research outcomes, public confidence in federally funded research could grow. That could attract new sources of private investment to complement NIH funding and ensure that public officials remain committed to funding research.
A federal judge has blocked the NIH’s proposal in some states, and the NIH will need to clarify some specifics. Nevertheless, the Institutes’ decision to cap indirect costs is bold and necessary. It will help reform America’s often-broken research and university systems.
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