The 15% Overhead Cap Is Dead — How Courts and Congress Saved Your Research Budget

For the better part of a year, every principal investigator at a research university has been doing the same math: What happens to my lab if the government cuts our overhead rate to 15 percent?

The answer, according to AAU estimates, was roughly $4 billion stripped from institutional research budgets nationwide. Labs would close. Core facilities would shutter. Postdocs would not be hired. Universities that negotiated rates above 50 percent — Harvard, Stanford, MIT, Johns Hopkins — stood to lose hundreds of millions annually.

That scenario is now off the table, at least through September 30. The Trump administration's push to cap indirect cost reimbursements at 15 percent has been blocked twice: once by the federal courts and once by Congress itself.

The Courts Moved First

On January 5, 2026, a three-judge panel of the First Circuit Court of Appeals in Boston affirmed a lower court ruling that the NIH's proposed overhead cap was unlawful. The judges found that the agency's action "violates a statute and regulations" — specifically, congressional language designed to prevent unilateral changes to negotiated indirect cost rates.

The NIH was not the only agency that tried. The National Science Foundation, the Department of Energy, and the Department of Defense all attempted to impose similar 15 percent caps on their grant programs. Federal judges blocked every one of them.

The legal reasoning was consistent across cases: indirect cost rates are individually negotiated between each institution and the federal government through a formal process governed by 2 CFR 200. Slashing those rates by executive action, without going through notice-and-comment rulemaking or congressional authorization, violated both the Administrative Procedure Act and existing appropriations language.

Then Congress Locked the Door

When President Trump signed the FY2026 Consolidated Appropriations Act on February 3, lawmakers had already written the courts' conclusions into statute.

The appropriations package includes explicit provisions for multiple agencies:

• NIH (HHS): Section 224 of Division B requires NIH to apply the indirect cost rates that were in effect as of the third quarter of FY2017 and prohibits HHS from using any funds to develop or implement a modified approach to determining those rates.
• DOD: Section 8146 of Division A requires the Department of Defense to continue using the negotiated rates in effect in FY2024 and bars DOD from using FY2026 funds to change them.
• NSF, NASA, NOAA, DOE: The Commerce, Justice, Science and Energy and Water Development titles include parallel language requiring these agencies to maintain negotiated rates through the end of the fiscal year.

The message from Congress was bipartisan and unambiguous. As the Joint Associations Group representing major research universities stated: "We thank Congress for ensuring continued support for all the costs associated with advancing American science."

The Energy Department went a step further, formally announcing that its indirect cost rate policy changes were "no longer in effect." A DOD official confirmed the department is "not presently working toward changes to indirect cost rates."

What the Numbers Actually Mean

The average negotiated indirect cost rate across U.S. research institutions is 27 to 28 percent. Some institutions — particularly large private research universities with expensive facilities — have rates exceeding 50 percent. Smaller institutions, community colleges, and nonprofits often have rates well below 20 percent.

A 15 percent cap would have been devastating for the institutions with the highest rates but would have had little practical effect on smaller grantees that already operate near or below that threshold. The irony is that the policy would have disproportionately harmed the very institutions producing the most federally funded research.

These overhead reimbursements are not administrative fat. They cover the physical infrastructure of science: lab space, HVAC systems, hazardous waste disposal, institutional review boards, export control compliance, animal care facilities, and IT networks. When overhead rates are cut, those costs do not disappear. They get shifted onto other revenue streams — typically tuition — or the capacity simply shrinks.

The FAIR Model: What Comes Next

Congress did not simply block the cap and walk away. The FY2026 legislation also directed federal agencies to work with universities on improving the reimbursement model, with an emphasis on "greater transparency into these costs."

The leading proposal is the Financial Accountability in Research model — the FAIR model — which would restructure indirect cost reimbursements into three categories:

1. Research performance costs — what are currently called direct costs
2. Essential research performance support — facility and equipment costs directly tied to specific projects
3. General research operations — institution-wide services that support all research (IT, compliance, administration)

Nearly 300 organizations have endorsed the FAIR model framework, and its proponents are calling for a two-year transition period to pilot the new structure. The idea is to increase transparency without gutting research capacity — a middle ground that neither the blunt 15 percent cap nor the status quo offers.

Whether the FAIR model gains traction in FY2027 appropriations negotiations remains to be seen. But the political dynamics have shifted. The administration's attempt to impose the cap through executive action backfired badly in court. Future changes to indirect cost policy will almost certainly need to go through Congress.

What PIs Should Do Now

If you are writing grant proposals for any federal agency, your budget should use your institution's current negotiated rate. The rate is protected by law through September 30, 2026.

If you are at an institution that preemptively lowered its rate or adjusted budgets in anticipation of a cap, talk to your sponsored programs office. The legal and legislative landscape has changed, and any voluntary concessions made during the uncertainty period should be revisited.

And if you are preparing proposals for FY2027 competitions, keep an eye on two things: the FAIR model discussions and the FY2027 appropriations process. The current protections expire at the end of FY2026. Whether they are renewed — and in what form — will depend on the next round of budget negotiations.

The overhead cap is dead for now. The fight over how America pays for the infrastructure of science is just beginning — and tools like Granted can help you track which agencies and programs are moving forward with new competitions while the policy dust settles.