On February 7, 2025, the National Institutes of Health (NIH) announced it would cap indirect cost payments on its grants at 15 percent. The policy has faced strong criticism from universities, the scientific community, and others, who argue it would place unsustainable financial strain on research universities, undermine biomedical research, and ultimately delay or reduce the development of new drugs, treatments, and other valuable health research. At the same time, many critics of the change concede that the current indirect cost recovery system is flawed and in need of reform.

This talk will rethink NIH indirect cost recovery policy. We’ll begin by reviewing the (controversial) history of U.S. indirect cost recovery policy from World War II to the present, and its place in the broader political economy of U.S. research funding. We’ll then present new evidence on trends in indirect costs, variation across institutions, and the gap between negotiated and effective rates. We will also discuss the projected impact of a 15 percent rate, compare it to the current system, and evaluate it against a range of other reform alternatives that have been proposed over the years. Finally, we’ll situate the indirect cost debate within broader discussions about NIH reform.