The Trump administration's universal 15% limit on NIH indirect costs is not in force. A federal court vacated and permanently blocked it, and the First Circuit affirmed that result on January 5, 2026. Indirect costs are shared expenses needed to support federally funded research, such as laboratories, utilities, data systems, and regulatory compliance. The controversy still matters because current funding law preserves the existing framework for calculating those costs.
Table of Contents
- What NIH tried to change
- What indirect costs actually pay for
- Why the courts rejected the cap
- What recipients and readers should check now
What NIH tried to change
nih's February 7, 2025 guidance sought to replace individually negotiated indirect-cost rates with a universal 15% rate. The limit would have covered new awards and future expenses on existing higher-education grants beginning February 10, 2025. That was a major change because institutions ordinarily document their shared research expenses and negotiate a rate through a formal agreement known as a NICRA.
Federal agencies generally must honor that rate for the life of an award, while the agreements themselves typically last two to four years. The NIH guidance announcing the cap therefore did more than trim a budget category. It attempted to replace institution-specific calculations with the same rate for every recipient.
What indirect costs actually pay for
The phrase "indirect costs" can sound like optional administrative spending. In research grants, however, it covers shared necessities that cannot be neatly assigned to one experiment or project. Those expenses include laboratories, utilities, hazardous-waste disposal, secure data storage, information technology, accounting, and compliance systems.
The First Circuit's decision describes these facilities-and-administration costs as part of the infrastructure supporting research. The immediate recipients are NIH-funded universities, hospitals, and other research institutions. The potential reach is broad: NIH provided more than $35 billion in outside grants supporting over 300,000 researchers in 2023.
Why the courts rejected the cap
The First Circuit found two independent legal problems. NIH's policy conflicted with both a recurring congressional appropriations restriction and department of Health and Human Services regulations.
The appropriations language requires NIH to apply its indirect-cost provisions as they operated in fiscal year 2017. It also bars NIH from using HHS appropriations for a "modified approach." HHS regulations contain a process for departing from negotiated rates, but NIH had never used that authority to replace them across the board. The ruling does not establish that indirect-cost policy can never change; it establishes that NIH could not impose this universal cap under the governing funding restriction and regulations.
What recipients and readers should check now
Institutions reviewing an NIH award should not assume that the proposed 15% limit controls. The relevant documents are the award terms, the recipient's negotiated rate agreement, and current NIH guidance.
A practical review should include: NIH's April 20, 2026 notice confirms that fiscal year 2026 law keeps the indirect-cost provisions of 45 CFR Part 75 applicable to NIH awards. It also rescinds newer flexibilities involving de minimis rates and modified direct-cost calculations, making the award and negotiated agreement the essential starting points.
- Confirm whether the institution has a current NICRA.
- Compare the negotiated rate with the rate used in the award documents.
- Separate direct project expenses from shared facilities-and-administration costs.
- Check whether guidance being cited is current or the vacated February 2025 notice.