Last week, we published a widely read and widely shared analysis on how NIH funding cuts could impact Columbia and the broader academic landscape. The response was overwhelming—we received a flood of questions, critiques, and requests for deeper context on research funding in higher education. This week, we’re diving into five of the most pressing topics that emerged.

First, a legal update: A Federal judge has issued two temporary restraining orders on the NIH cuts. The first applies only to the 22 states whose attorneys general filed lawsuits, while a second, broader order has extended the block nationwide. Meanwhile, at least thirteen universities—including Brandeis, Brown, the UC System, Caltech, Carnegie Mellon, Chicago, Cornell, GWU, Hopkins, MIT, Penn, Rochester, and Tufts—have launched lawsuits against the NIH. As we predicted, this is quickly becoming a drawn-out legal battle, but the lingering uncertainty is already making it difficult for universities to plan and function effectively.

Since this is a complex and highly technical issue, here’s a TL;DR for the rest of us:

• The NIH announcement was misleading. It conflated three different methods of calculating overhead costs, creating confusion about how universities manage research funding.
• Universities’ overhead rates aren’t excessive. They’re in line with private-sector pharmaceutical and medical research firms but higher than tech companies. The cuts may stem from Trump administration officials (many from the tech industry) applying their own “lived experience” from other sectors.
• Regulations are a key driver of rising costs. Since 1991, 270 new federal regulations have increased compliance burdens, significantly inflating administrative expenses.
• There’s an indirect subsidy at play. A Rutgers professor explains how research funding, while restricted in its use, can indirectly free up money for other university functions.
• Lawsuits won’t be a long-term fix. Even if universities win in court, future contracts could still impose lower overhead rates. The real challenge is adapting to a shifting funding landscape.

Now, let’s take a deep dive into these issues.

Indirect Cost Rate Means (At Least) Three Different Things

The NIH recently announced cuts to indirect cost recovery (ICR) rates, but after carefully reviewing both the official statement and its accompanying social media posts, we believe they conflated three different calculation methods—resulting in a misleading portrayal of university overhead costs.

To illustrate this, let’s break it down using Columbia’s numbers:

Method 1: The Cherry-Picked Maximum. The NIH highlighted the highest ICR rates at elite universities—Harvard at 69.0%, Yale at 67.5%, and Johns Hopkins at 63.7%—suggesting these represent typical costs. However, these figures only apply to the most expensive category of on-campus research. No university applies this rate across the board (in fact, some major categories of research spend, such as capital expenditures, are excluded from ICR entirely), making this representation misleading.

Method 2: NIH’s Standard Calculation (Indirect/Direct Costs). This is the method NIH actually uses. It calculates ICR as a ratio of indirect costs over direct costs. By this approach, Columbia’s ICR is 35.6%, which aligns with national trends. The NIH itself states that, in 2023, $26 billion went to direct research costs and $9 billion to overhead, leading to an ICR of 34.6% (9 / (35-9)).

Method 3: A More Intuitive Approach (Indirect/Total Costs). We argue that this method—indirect costs divided by total costs—offers a clearer picture and is more comparable to private-sector benchmarks. By this measure, Columbia’s ICR is 26.3%. The NIH cited a source that showed a historical nationwide range of 27-28%, which actually uses this indirect/total method. However, the NIH’s announcement compared this metric with both Method 1 and Method 2, which is not an “apples-to-apples” comparison. If NIH had applied Method 2 to historical data, it would show that ICRs from 2009-2020 were actually 38-39%, meaning today’s rates are lower than they’ve been in the past.

This discrepancy is important. NIH’s announcement presented these methods interchangeably, without clarifying the differences. Using Method 1 for headlines, Method 2 for current rates, and Method 3 for historical comparisons creates a misleading narrative about university overhead costs.

Simply put, the numbers NIH used aren’t wrong, but the way they framed them—whether intentionally or not—is, at best, misleading.

How Does This Compare to the Private Sector?

We prefer Method 3 (indirect costs as a percentage of total costs) because it closely parallels a common private-sector metric: SG&A (sales, general & administrative expenses) as a percentage of revenue. SG&A is often used as a measure of corporate efficiency, making it a useful benchmark for understanding university overhead.

To explore this, we compared Ivy Plus universities (excluding Brown, Princeton, Penn, Duke, and Chicago, which did not disclose ICR numbers) to a cross-section of companies with significant R&D spending—primarily tech companies and pharmaceutical/medical device firms.

The comparison works as follows: for universities, the numerator is ICR (indirect cost recovery), and the denominator is total government grants (including ICR). For companies, the numerator is SG&A expenses, and the denominator is total revenue.

From this we can make a few observations:

• Columbia appears to be the most efficient of its Ivy Plus peers that disclosed ICR data.
• Universities appear “in line” with their private sector counterparts in the pharmaceutical and medical device companies (highlighted in yellow). This makes sense, given that a large portion of university research funding comes from NIH grants, which focus heavily on biomedical research.
• Tech companies (highlighted in blue) tend to have significantly lower SG&A expenses compared to healthcare companies, reinforcing the idea that different industries operate under different cost structures.

Interestingly, we also found this report that suggests that national laboratories (Los Alamos, Lawrence Livermore, Oak Ridge, Pacific Northwest, etc.) are “more expensive than universities, but not significantly, given organizational differences.”

A compelling theory we’ve heard is that the Department of Government Efficiency (DOGE) officials driving these NIH cuts largely come from tech backgrounds—including former Tesla staffers, a company known for having industry-leading low overhead costs. They may have transplanted tech-sector cost expectations to biomedical research, which inherently requires more administrative and regulatory infrastructure.

This also speaks to a broader cultural divide: tech operates on a “break now, fix later” model, where rapid iteration and minimal bureaucracy are advantages. Scientific research and national R&D platforms require long-term stability, collaboration, and strict regulatory compliance—factors that don’t fit neatly into a Silicon Valley operating model.

Applying tech-industry cost-cutting to biomedical and university research may have unintended consequences, especially if it dismantles the robust human capital, trust-based networks, and collaboration-driven ecosystems that took decades to build.

The Growth of Overhead Tied to the Growth of Regulation

At the heart of the debate over ICR rates is a simple question: Why do universities need so much overhead funding? According to the Council on Government Relations—a nonprofit that tracks federal policies affecting U.S. research institutions—the answer is because of a relentless rise in Federal regulations and compliance requirements since 1991, when ICRs were capped at 26% (Method 2).

A staggering 270 regulations were adopted since 1991, and 168 (62% of the total) were adopted in the last decade alone. These regulations include items like the NIH’s “Updated eRA RPPR Module and Instruction Guide: Action Required for In-Progress Budget Forms (2022)” and “Payment Management System Sub-Accounts (2013)” and “Upcoming Changes to the Biographical Sketch and Other Support Format Page for Due Dates on or after May 25, 2021 (2022)”.

The cumulative effect is that universities have had to expand administrative staff and systems just to remain compliant, driving up costs that must be recovered through indirect funding. If the Trump administration pursued a sufficiently deregulatory agenda that reduced these compliance requirements, then the oft-criticized “administrative bloat” should shrink as well.

The Mystery of Cross-Subsidies

Last week, we made a statement that sparked a lot of discussion: “The fungibility of money means that fields like natural sciences, engineering, and medicine—which benefit from federal grants—indirectly subsidize the arts and humanities.”

To be crystal clear: this does not mean NIH indirect cost recovery (ICR) funds are directly diverted to other departments. Instead, the nature of university budgeting means that money, while allocated for a specific purpose, can indirectly free up other resources that universities can then distribute elsewhere.

One example of how this might work comes from a Substack post by Professor Lee Jussim, a Distinguished Professor of Psychology at Rutgers University (quite literally a sister school as it was founded as Queens College in 1766 and named after Colonel Henry Rutgers, King’s College Class of 1766). As a former department chair, he shared insights into how indirect costs (overhead funding from grants) flow through university administration. Here’s how he explained it:

“I asked him where startup package support [for a new hire] comes from. He said, “Indirect costs.” I asked, “How does that work?”

He explained that the Central Administration keeps some (I think it was about half, maybe a bit less) and then another 40-45%ish goes to the Dean’s Office (he gave me an actual number but I no longer remember it exactly). He also told me that they strive to provide startup packages over the long run that approximately equal the indirect costs brought in by the Department. So, administration money generated by the Dept is eventually returned to the Dept, or, at least, the Dean’s share of those are.”

Let’s break it down with an example, assuming a 60% ICR rate (Method 2) or a 37.5% ICR rate (Method 3).

1. NIH provides a $1.00 research grant to a professor. This money is strictly for direct research costs and cannot be used for anything else.
2. NIH also sends $0.60 to the university’s Central Administration for indirect costs. This funding is designated for overhead expenses (building maintenance, compliance, IT, etc.) and remains nonfungible.
3. Here’s the critical step: Central Administration also receives other unrestricted funds, such as tuition revenue. Since the university has multiple revenue sources, it uses the NIH overhead money for its intended administrative purposes but, in doing so, frees up an equivalent amount of unrestricted funding. In Professor Jussim’s example, that amount is $0.24 (40% of ICR)—this newly “freed up” money is now fungible and available for discretionary use.
4. That $0.24 is sent back to the Dean (or other Deans), who can allocate it however they see fit. This might mean investing in faculty startup packages, funding other departments, or otherwise supporting initiatives unrelated to the original NIH grant.

Step 3—the commingling of restricted and unrestricted funds—creates a mechanism where nonfungible dollars (Federal grants) indirectly free up other fungible dollars for broader university use.

To be abundantly clear, this example is based on Professor Jussim’s experience at Rutgers. We do not know if this same system applies at Columbia or other institutions. However, it does provide a plausible framework for understanding how Federal research funding can indirectly support university operations beyond the sciences.

This isn’t a case of universities misusing NIH funds—those remain strictly allocated. But because research-heavy departments bring in significant overhead funding, their presence indirectly benefits the entire institution by easing financial constraints elsewhere.

So what now?

The scale of the NIH cuts was a seismic shock—one that is bad for higher education, bad for the United States, bad for scientific progress, and a gift to Putin and Xi.

But in the midst of this crisis, one silver lining has emerged: people are finally asking hard questions about university funding that have gone unexamined for too long. The fact that NIH itself (mistakenly?) mixed three different methods of calculating ICR in its announcement only underscores how little understood this niche area of academic finance really is.

While we’ll be closely watching the lawsuits unfold, legal battles won’t provide a long-term solution—administrations can simply lower ICR rates in future contracts. If we were advising university leaders on how to navigate this moment, we’d offer four key recommendations:

First, increase transparency. The Trump administration’s decision to cut ICR rates seems rooted in a belief that overhead funding is being misused—either to cross-subsidize unrelated activities or to fund ideological initiatives they oppose. DOGE spokesperson Katie Miller even claimed the cuts would eliminate “Liberal DEI Deans’ slush fund.” Is that perception accurate? If not, universities need to do a much better job explaining how these funds actually flow. A clear, data-driven breakdown of how ICR money is allocated—paired with proactive engagement—could help rebuild trust and prevent politically motivated cuts in the future.

Second, look for opportunities to adapt. If ICR rates are reduced but the NIH budget remains steady or even grows, then by definition, more funding will flow directly into research rather than overhead. By that logic, the overhead cuts actually increase research funding. Universities must ask themselves: Are there inefficiencies that can be addressed? Could administrative costs be streamlined through automation, mergers, or “deproceduralization”? If excessive regulation is driving ICR growth, could universities work with policymakers to ease compliance burdens? Higher education is not known for its operational efficiency, and some level of reform is inevitable. Instead of resisting change entirely, institutions should identify areas where they can adapt while still protecting core research functions.

Third, rebuild public trust. There is bipartisan frustration with the state of America’s universities. The traditional social contract between the public and academia is fraying, exacerbated by long-standing grievances such as skyrocketing costs, a perceived gap between cost and value, and a perception that universities are politically biased and out of touch with national interests. For too long, higher education has responded to criticism defensively, resentfully, or with an air of entitlement. That needs to change. Universities must make the case for their value in a way that resonates with the American public—clear, compelling, and free from academic jargon or political posturing.

Fourth, communicate the stakes. The United States’ global leadership in science and technology is not guaranteed. Our national R&D  infrastructure has kept us ahead for decades, but geopolitical rivals are aggressively investing in their own ecosystems. When the Soviet Union launched Sputnik, the U.S. responded not with austerity, but with bold investments in science and education—leading to the creation of DARPA, NASA, and the NDEA under the leadership of Republican President (and former Columbia President) Dwight Eisenhower. The challenges of the next 50 to 100 years will be just as formidable. Will the U.S. double down on research and innovation, or will short-term cuts erode our long-term competitiveness?

The bottom line: The NIH cuts are just the beginning of a broader fight over the future of research funding. Universities can either engage, adapt, and make their case persuasively—or risk being left behind in a changing political and economic landscape. If the latter comes to pass by neglect or omission, then the losses will be borne by the American people.

News Roundup

– February 14, 2025. The New York Times ran an opinion piece that claimed Trump is against academia as a whole, not just the “woke” parts, focusing on the recently announced NIH cuts. Michelle Goldberg argues that this would be deleterious for higher education in general. Citing H. Holden Thorp, Science editor, for every dollar spent on “academic research, roughly another dollar is needed for lab equipment, support staff and systems for managing grants.” As of now, a huge portion of this is subsidized by the Federal government. But if that drops to 15%, schools would be unable to “close the gap” with tuition hikes and the like. The author argues this would not only set back research for cures for diseases as well as potentially damage towns and regions where universities are the main employers. 

– February 13, 2025. The New York Times reports that different schools and universities are interpreting Trump’s DEI orders differently. While certain colleges take down web pages and cancel events, others make assurances of resistance. North Carolina’s public universities have revoked the requirement that students had to take classes linked to DEI. The University of Akron canceled its “Rethinking Race” forum that it has been putting on for over twenty years. The University of Colorado deleted its main DEI page online and instead now has one for the Office of Collaboration. Christopher Eisgruber, president of Princeton, encouraged people to “Keep Calm and Carry On,” until legal orders crystalize along with their meaning. West Point has “disbanded” twelve student affinity groups to see if they oppose the orders. 

– February 13, 2025. The Gothamist writes that Columbia’s medical school has frozen hiring and other financial outputs while waiting to see how the budget cut threats unfold after being challenged in court. It remains to be seen how many other schools will follow suit with preemptive cuts. The University of Iowa promised to slow or pause hiring and other spends after the NIH announcement last week, but they took that back once the courts intervened to pause the order. Columbia University Health Sciences is one of the biggest recipients of NIH funding in the United States. 

– February 13, 2025. The Spectator reports that Congress has asked for more disciplinary documents, “citing ‘continued failure’ to address antisemitism.” In November 2024, The House Committee on Education and the Workforce already released Columbia disciplinary documents. Tim Walberg, chairman of the House Committee on Education and the Workforce, asked in a letter to Columbia administrators for release of disciplinary records for events ranging from April 2024 to January 2025. He specified incidents including Hamilton Hall’s occupation and the disrupted History of Modern Israel lecture. He also repeatedly cited the University’s Charter and Statutes, which we’ve also done so.

– February 11, 2025. The NY Post reported that some of the Columbia students who were suspended for protesting for Palestine are now suing Columbia. Last week, the suit was filed, and the students claimed that the University “went to extreme lengths to quash protests after the school’s Gaza Solidarity Encampment ignited a global uprising” in spring 2024. The students claim they were “wrongly suspended and arrested during protests.” The president of Columbia’s Jewish Alumni Association, Ari Shrage, said, “These students are learning the hard way that their actions have consequences. If they really believed in what they were doing, why are they suing?”