White House Proposes Indirect Changes to Indirect Costs

A sweeping proposed rule on federal grantmaking contains subtle efforts to reduce federal spending on indirect costs, despite the White House emphasizing that the rule would leave the current rates and the negotiation process unchanged. The proposal would disallow various costs that grants currently cover and direct agencies to give preference to institutions with lower indirect cost rates.

The Office of Management and Budget is accepting comments on the proposed rule until July 13, but “does not intend to consider or respond to” any comments on the indirect cost rate negotiation system, the rule states.

Indirect costs cover expenses that support research, such as equipment and facilities maintenance, IT services, and administrative support. For federal research grants, universities negotiate indirect costs with the government as a percentage of direct costs. For example, an indirect cost rate of 50% means that for every dollar awarded as part of a research grant for eligible direct costs, the institution would receive up to 50 additional cents to cover indirect costs. Some universities currently have indirect cost rates of 60% or higher, while the minimum rate that any university may use is 15%.

The proposed rule would give preference to institutions with lower indirect cost rates, “all else being equal.” Those decisions would be made by political appointees, who would have broad authority over grantmaking under the rule.

Additionally, the proposal disallows several cost categories that are currently billable as indirect costs at some agencies , potentially reducing the amount of indirect costs that a grant would cover. The newly disallowed costs would include journal subscriptions, organizational memberships, and publication and printing, unless the agency gives prior approval. They would also include any costs, direct or indirect, from collaborations with certain foreign countries or entities.

The Trump administration attempted dramatic changes to the indirect costs system last year. In February 2025, the National Institutes of Health announced a 15% cap on all indirect cost rates, followed by similar announcements from the Department of Energy, the National Science Foundation, and the Department of Defense.

Courts consistently blocked the implementation of those caps, but the administration still appeared interested in cutting down on indirect cost reimbursement. President Donald Trump’s August executive order, which first outlined many of the changes that OMB now seeks to codify through the proposed rule, aimed to “appropriately limit” the use of grant funds for covering indirect costs. The administration also proposed to “continue” the 15% cap for NIH as recently as April.

Congress included language in several funding laws for fiscal year 2026 that maintains the current indirect costs system. Because of this, the proposed rule does not suggest changes to the current system, though OMB may consider issuing a request for information later, the proposal states. However, it also highlights where appropriators have written that the current system has “room for improvement” and flags concerns about the alternative Financial Accountability in Research (FAIR) model proposed last year, including that it “may increase overhead payments to large organizations and fail to resolve significant problems of the existing system, including complexity, inefficiency, and excessive overhead spending by the federal government.”