Penn State anticipates it would lose about $35.2 million under the Trump administration’s decision to significantly limit payments for costs associated with National Institutes of Health-funded research, university officials wrote in a statement on Sunday night.
The policy change would cap funding of indirect costs — which includes expenses ranging from research security to equipment to personnel for administrative work — at 15%. In announcing the policy on Friday, the NIH’s Office of Policy for Extramural Research Administration wrote that of the $35 billion allocated for research grants in 2023, $9 billion went to indirect costs, or “overhead.”
“It is… vital to ensure that as many funds as possible go towards direct scientific research costs rather than administrative overhead,” the agency wrote in a guidance memo, noting that many large private foundations that fund research cap indirect costs at 15% or lower.
The change, according to Andrew Read, Penn state senior vice president for research, and Dr. Karen Kim, dean of the College of Medicine, would “have substantial implications for our ability to support federally funded research.”
Last fiscal year, the cap would have meant a loss of $18.3 million for research at University Park and $16.9 million for the College of Medicine, according to Penn State, and the university expects similar figures for this year.
“The loss of these funds will substantially reduce our ability to conduct groundbreaking research, particularly in the health sciences,” Read and Kim wrote.
The cut “applies to all new grants issued, as well as to current grants for which expenses would be incurred beginning Feb. 10,” according to Penn State.
Attorneys general from 22 states (Pennsylvania is not among them) have sued to block the policy change, at least temporarily, arguing that it is “arbitrary and capricious” and violates the federal law governing how agencies implement new regulations.
“The effects of the Rate Change Notice will be immediate and devastating,” the lawsuit states. “Medical schools, universities, research institutions, and other grant recipients across the country have already budgeted for (and incurred obligations based on) the specific indirect cost rates that had been negotiated and formalized with the federal government through the designated statutory and regulatory legal process. This agency action will result in layoffs, suspension of clinical trials, disruption of ongoing research programs, and laboratory closures.”
Read and Kim said Penn State is working with peers and various national public and research university organizations “to assess the potential impact and to advocate strongly.”
Examples of indirect costs, they wrote, include “research security, research compliance, high performance computing, specialized core facilities, human and animal subject protections, and personnel required to support essential administrative and regulatory compliance work.”
Indirect cost recovery does not subsidize anything else and does not result in an income stream for universities, according to Read and Kim.
“As we know, the federal government relies on universities to conduct many different kinds of research in the nation’s interest,” they wrote. “This includes research aimed at meeting specific national goals that benefit taxpayers, such as health, economic growth, agriculture, and national defense. Performing research on behalf of federal agencies results in a variety of expenses that would not otherwise be incurred by universities.
“All universities have indirect costs, and for most, this drastic cut would be devastating, and universities could not operate in the way we do now, if these costs were not recouped.”
The Association of American Medical Colleges said in a statement that the cuts “will diminish the nation’s research capacity, slowing scientific progress and depriving patients, families, and communities across the country of new treatments, diagnostics, and preventative interventions.”
“The government’s support of facilities and administrative costs allows medical research to happen,” AAMC President Dr. David J. Skorton and Chief Scientific Officer Dr. Elena Fuentes-Afflick wrote. “These real and documented research expenses include physical lab operations and maintenance, security, data processing and storage, and daily operations of critical research infrastructure. Make no mistake. This announcement will mean less research. Lights in labs nationwide will literally go out. Researchers and staff will lose their jobs.
“As a result, Americans will have to wait longer for cures and our country will cede scientific breakthroughs to foreign competitors.”
Penn State noted that it is “still working to understand the directive and the potential implications.”
Executive orders and actions by the Trump administration to implement swift and sweeping cuts to a range of federal agencies have left universities nationwide with questions and concerns. Penn State has established a “Federal Funding Updates” website with information on potential impacts.
It notes that “potential affected areas include but are not limited to diversity, equity, and inclusion (DEI) initiatives, foreign assistance, and clean energy.”
“As a research community, we are tasked with creating knowledge for the greater good and with educating our students,” Read wrote in a statement on the site. As we navigate these new waters and their potential impacts on our University, we must remain committed to this mission and make it our top priority to carry it out. Please know that we are here to support you. The University remains committed to research and educational excellence, and together we will navigate any changes to come.”
