Indirect Cost Rates

Research grants pay two kinds of costs. Direct costs are tied to a project, such as a scientist's salary or a microscope. Indirect costs, also called facilities and administrative costs, pay for shared expenses such as buildings, electricity, hazardous waste disposal, libraries, and the staff who handle safety rules and accounting. Each university or institute negotiates a rate with the federal government, usually the Health and Human Services Department or the Office of Naval Research, based on audited expenses.

Negotiated rates for universities typically range from about 40 to 70 percent of direct costs, with administrative costs capped at 26 percent since 1991. NIH paid roughly 9 billion dollars a year in indirect costs out of its research grants. Universities argue these are real costs of research that they cannot otherwise cover, while critics argue high rates subsidize administrative bloat and that private foundations pay far less, often 15 percent or under.

In February 2025 NIH announced a flat 15 percent rate for all grants, saying it would save about 4 billion dollars a year. A federal court blocked it in April 2025, an appeals court upheld the block in January 2026, and the government did not appeal further. Energy, Defense, and science agencies tried similar caps, which were also blocked or withdrawn. Congress has barred NIH from changing the rates through spending law riders since 2017, and kept that bar for fiscal 2026. University groups have proposed a new model that ties payments more closely to actual project costs.