Trump Admin Slashes Indirect Cost Rates for Research

It’s emblematic of the DOGE approach – clueless and thoughtless

Disclaimer: This post was written by Dr. Andrew Rosenberg in his personal capacity and not on behalf of any organization or entity. The views expressed herein are Dr. Rosenberg’s and his alone.

Yesterday, the National Institutes of Health issued a new guidance memo announcing that, unilaterally, they were changing the indirect cost rate that would be allowed for research grants. Henceforth, the indirect cost rate would be capped at 15% across the board. That is a huge reduction; it will have an immediate impact on every university, researcher, and research institute in the country that receives funding from NIH. While it is unclear if other federal government science funders, such as NSF and the mission agencies will follow suit, it seems likely. And while yesterday’s announcement slashes funding for biomedical research, I expect other and perhaps all research disciplines will be affected.

The rationale given in the guidance is that private philanthropic institutions generally use a much lower cap for indirect costs when awarding grants. The guidance even presents a table showing indirect cost rates from several large philanthropic foundations. It also cites the regulatory authority for unilaterally capping the rate.

When I was a university faculty member and a dean, I had to wrestle with the challenges of indirect costs in grants from many sources. My own research program had both government and private philanthropic foundation grants. In typical Trump/Musk Administration fashion, the memo announced the cuts by fiat, but it is far from a simple issue. Here’s what’s clear to me: While reform of the basic structure of research funding is worth careful review, analysis and ultimately improvement, making a surprise change based on ideology and sound bites is showy, but destructive. The announcement seems designed to scare and confuse people by hacking through a complex issue with a blunt instrument. And, on its face, a single capped rate that aligns with private philanthropy makes no sense at all.

Welcome to the stupid world of Trump/DOGE where press releases and hand waving substitute for public policy.

The Complexity

To be fair, indirect cost rates drive everyone a little bit crazy. As a researcher, I bemoaned the high rate my university would charge because it meant my proposal budget was much higher and it was a struggle to keep the project’s costs competitive.

Researchers live in a hypercompetitive world, unrecognized by most in the private sector. I also have run a private business that had to compete for contracts. Competing for grant funds is much tougher. Why? Because, in most cases, the proposals are hugely detailed. And the review process and timeline for grant competition, no matter the scope and budget for the proposed work, is often very long. For major government grants, researchers can wait six months or more to get a funding decision. The success rates are relatively low for most types of grants. That all means the sustainability of programs and people’s salaries are difficult to maintain. That, perhaps, unclear to many people not deeply engaged in research increases the costs, including indirect costs.

As a Dean, I wanted to support my institution’s researchers in their struggles to obtain funding for their work. That meant helping them be competitive as well as supported by the institution. The lead researchers, with institutional backing, need to provide support for students, post-docs, and staff in their labs or field programs, as well as bringing in part or all of their own salaries and maintaining cutting edge research capabilities. Despite the idiotic statement from a DOGE minion, I didn’t have a “Dean’s slush fund for DEI” or any other purpose. What I did have was buildings full of labs and specialized facilities that faculty and their teams used for research and training. I also had a university grants department, a budget office, HR department, a facilities and maintenance department, and, yes, administration for the university as a whole -- all the way up to the President’s office. Surprise, surprise! So do all large organizations. Especially those that are public-facing and in public service – like all universities and other research institutions.

So how do (or did) government funding agencies like NIH and NSF handle setting indirect cost rates? There is a negotiated rate for each grant recipient institution based on a complex set of data and analysis that the institution and the agencies work through together. That’s the expected rate. If I, as Dean, wanted to allow a researcher to use a different indirect cost rate, I would have to figure out where to come up with the difference from another budget line. And in a public university like where I worked, there aren’t a lot of other sources for funds. Just like with every enterprise, public or private, that I have worked with, budgeting is tight and difficult.

Private Philanthropy

Over my career, I had grants for my own research from some of the foundations listed in the NIH memo. And it’s true that most private foundations cap indirect costs well below the federal agency negotiated rate. They can do that because they are private. And universities can accept it or reject the funding if they can’t cover their costs somehow.

So, what happens? With a private foundation grant, I would try to put as much of the full cost into direct costs as possible. Computer and internet costs? Line item. Tuition for grad students? Line item. It was laborious, and sometimes foundations wouldn’t want to pay for certain things. But they are real costs, and the money doesn’t fall from the sky like the snow outside my window as I write this. In short, indirect costs are “real” costs, not slush funds for profit (as the private sector includes in costs but research institutions don’t). And guess what? The private sector, including all of the co-Presidents business include indirect costs too. They just account for them differently and less transparently. Where do you think CEO salaries come from? The price for whatever the firm produces includes the expense of paying for the salaries of those not actually on the production line, aka the indirect costs.

Also, government grants and private philanthropy don’t necessarily fund the same things. Private foundations have their own themes and interests that tend to be, well, narrow. Government funders like NIH and NSF have broad programs. Sometime private funds can enable you to do work that is a bit out of the mainstream. But sometimes, it is only government that is open to certain types of new research.

The timelines and review processes are different for the two types of grants, as are the reporting requirements. The renewal is different. The competition is different. And yes, the budgeting is different. Crucially, I don’t think many institutions could do the great research they do with private philanthropic funds unless they also had government funding to support the broader institution and mission. The numbers just wouldn’t work.

How Not to Make Change in Complex Systems

If we can accept that scientific research is important and serves the public, advances knowledge, and is good for society and prosperity then we should also accept that it won’t just happen without funding. The private sector is very good at some things, including doing important applied research in science and technology. But in the modern era, it all rests on government-funded basic and applied research. Elon Musk didn’t “invent” space flights or satellites or communications or electric cars or whatever he made billions of dollars doing (NB his huge compensation package was essentially from “indirect costs”, i.e., it wasn’t directly part of the expense for doing the work). The basic research all came from government-funded institutions.

The system that developed to support the US research enterprise, particularly since WW II, included a way to pay for institutional indirect costs. Could we have a different system? Sure. Would it be better? Unclear. But the way to figure it out is to do the analysis, including costs of transition. But that is not the DOGE way. They prefer to break stuff and then gloat that it’s broken because they don’t have to live with the consequences or be held accountable for the damage they do.

The private sector likes to talk about “disruptive” strategies and innovation. All very evocative and exciting. But that disruption is to serve an unfilled need in the market, with startup companies challenging bigger players. Does that really apply to changing the US research enterprise? After all, we aren’t talking about the market for socks, or even cars.

There is disruptive, and there is stupid. The abrupt change in the indirect cost rate for NIH and other government funding is both. It seems that many science institutions are reluctant to criticize the DOGE effort or the Trump Administration. I hope that they won’t be targeted next. That somehow, they can keep doing what they are doing and remain above the fray. Well, that isn’t working…

If you are not in this fight, you will be overcome by it.

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