NSF caps indirect costs at 15% for new university grants

The National Science Foundation will limit reimbursement for facilities and administrative (F&A) costs on all new awards to U.S. colleges and universities to 15% of modified total direct costs starting May 5, upending a decades-old system of institution-specific negotiated rates. The details of the new plan are spelled out in a policy notice.

The policy notice, issued on May 2, applies to every NSF grant and cooperative agreement to higher-education institutions but leaves existing awards untouched. NSF framed the flat rate as a way to “streamline funding practices” and “ensure that more resources are directed toward direct scientific and engineering research activities.”

The agency states the standard rate will reduce administrative burdens for recipient institutions, ensure consistent treatment across universities, and improve overall government efficiency by eliminating the need for individualized indirect cost negotiations.

A potentially big haircut for research infrastructure

Universities typically recover far more. A recent analysis from MIT Sloan, Duke University, and Arizona State University provides relevant context from NIH funding. Across 350 institutions studied, negotiated indirect cost rates averaged 58%, while the effective rates actually paid by NIH averaged 42% —  nearly three times the NSF’s new cap. Some institutions like Harvard University having negotiated rates of 69.0% and 69.5% for on-campus federal research in its main schools. The MIT Sloan study warned that a 15% flat rate could lead to significant funding cuts, especially impacting universities heavily involved in research translation like commercial patenting and drug development.

Echoes of recent NIH and DOE moves

NSF’s decision follows controversial attempts by two other major science agencies this year to alter indirect cost recovery policies. The National Institutes of Health (NIH) tried to implement significant policy changes in February, but a federal judge issued a nationwide injunction in March, effectively blocking the rule by early April, as U-M Research noted. The Department of Energy announced  related policy updates regarding cost-sharing and indirect costs in April; the Council on Governmental Relations (COGR) called that cap “ruinous … a self-inflicted policy wound that will slow the pace of American research and innovation,”  according to Inside Higher Ed. A multistate lawsuit has already frozen the DOE rule, and higher-ed groups are expected to challenge NSF next.

In addition, the NSF is navigating severe budget pressures and significant staff cuts in 2025. Mandates for significant federal downsizing, political scrutiny over specific spending areas like DEI, and funding shortfalls relative to legislative goals like the CHIPS Act have fueled projections of workforce reductions potentially as high as 50%. While an initial wave of probationary layoffs was largely reversed following legal action, the agency has turned to voluntary buyouts and is now under directive to develop formal plans for large-scale Reductions in Force (RIFs).

On social media, researchers dissected news hairs. “Overhead at many institutions is probably too high, but 15% is definitely way too low,” one chemist wrote on Reddit hours after the NSF notice appeared.