On May 5, Cornell sued the National Science Foundation (NSF) over a 15% cap on recovery of indirect costs associated with its research grants. This follows two earlier lawsuits on the same issue regarding grants from the National Institutes of Health (NIH) and the Department of Energy (DOE).
Federal research grants, including NSF grants, allow for recovery of actual research costs. Actual research costs encompass both direct and indirect research costs. Direct costs are billed based upon actual costs expended by the principal investigator for that project. Other costs, such as utilities, the cost of the lab space, the janitors, and other expenses that support the research but are not accounted for on a project-by-project basis, are “indirect costs.” that are recovered based upon the size of the individual research grants.
In the case of Cornell, a 64% indirect cost recovery rate has been negotiated with federal auditors. So if a Cornell researcher wins a $100,000 NSF grant through a competitive process, Cornell will receive an additional $64,000 to pay for indirect costs of the research.
On April 24, NSF Director Sethuraman Panchanathan announced that he was leaving after five years. He had been appointed during the first Trump Administration.
On Friday, May 2, the NSF published a notice that beginning on May 5, all new NSF grants would be subject to a maximum indirect cost recovery rate of 15%. The 15% rate maximum applies only to new awards made to universities on or after May 5, 2025. Cornell estimates that this would cost Cornell $25 million per year, which would have to be funded from some other source. Nationwide, an NSF study estimates the total in unrecovered indirect research costs for fiscal year 2023 to be $6.8 billion, even without this cap.
RELATED: Harvard Sues Trump Administration
Cornell filed a lawsuit with the Association of American Universities, the American Council on Education, the Association of Public and Land-Grant Universities, and 12 other research universities. Among the attorneys signing the complaint was Republican conservative Paul D. Clement. The complaint was filed in the U.S. District Court for Massachusetts, where the earlier cases were also filed. It claims that the NSF action is arbitrary and capricious, as well as inconsistent with existing regulations, law in effect since 1965, and Congressional intent,. So, the NSF violates the Administrative Procedure Act and the NSF’s cap should be overturned. In addition, the complaint asks for an interim injunction to stop the 15% indirect cost rate cap from going into effect.
In a formal statement, President Kotlikoff and Provost Bala wrote:
“What many may not know is that even at the full negotiated rate, Cornell must still use institutional funds to subsidize indirect costs to ensure the successful undertaking of federally-sponsored research. If the NSF’s established rate were to drop to 15%, the university would have to divert significant other funds to increase that level of subsidy to continue the research the federal government has selected us to perform. This would compound existing and looming financial challenges such as cuts to federal financial aid, stop-work orders, and grant terminations, and the potential imposition of an endowment tax.”
The courts have granted injunctions in the two earlier cases suspending the 15% rate cap on NIH and DOE grants. The NSF followed by issuing a notice pausing the implementation of the rate cap until a court hearing on June 13. In the meantime, all new NSF grants will contain a condition that includes the 15% cap, but it will not be enforced. The NSF’s voluntary action eliminated the need for a court hearing on a temporary restraining order.
On June 20, the NSF case was the first of the 15% cap cases to reach a final decision. U.S. District Judge Indira Talwani declared that the NSF policy was “invalid, arbitrary and capricious, and contrary to law.” Lawyers for the NSF had argued that the NSF did follow the law and that the universities didn’t have standing to sue. Additionally, the policy was not subject to judicial review, the NSF said. Judge Talwani disagreed and vacated the order. The government may now appeal.
Meanwhile, the 15% cap issue is being hotly debated on Capitol Hill.
NSF Budget Debate
The Trump Administration is further attacking NSF funding in its proposed 2026 budget that would take effect on October 1, 2025. On May 30, the White House proposed an NSF funding cut of 57 percent, reducing it from an enacted $9.06 billion in fiscal year 2025 to $3.9 billion. This would significantly curtail NSF’s ability to fund researchers. The number of individuals supported by the NSF is expected to drop from over 330,000 in fiscal year 2024 to just 90,000. Specifically, the proposed budget would reduce the NSF Graduate Research Fellowship Program (GRFP), which provides 3 years of financial support to graduate students, to 55% of current levels.
The White House offers a narrative explanation for its proposed NSF cuts:
“National Science Foundation (NSF) General Research Grants and ‘Broadening Participation.’ The Budget eliminates $5.2 billion from NSF, which has funded radical DEI and climate change alarmism. NSF no longer funds speculative research on impacts from extreme climate scenarios and niche social studies, such as a grant to the University of Nebraska to create ‘affinity groups,’ for bird watchers, or a $15.2 million grant to the University of Delaware to ‘achieve sustainable equity…and coastal resilience in the context of climate change,’ or programs ‘addressing White Supremacy in the STEM profession,’ or preparing ‘the next generation of DEI leaders to promote long-term, sustainable racial equity initiatives.’”
House Democrats have responded. House Science Committee Ranking Member Zoe Lofgren (D-CA) issued a statement:
“This sick joke of a budget is a nonstarter. In no way can America continue to lead if Trump continues his vendetta against the scientific enterprise. While Trump slashes budgets for American research and innovation, our adversaries, like China, are popping champagne. I will do everything I can to stand in the way of this ridiculous plan. Republicans need to join Democrats in fighting for the programs they once supported, and their communities thrive on. Trump’s obsession with destroying American science will take decades to clean up.”
In general, the Trump Administration is introducing much change to the NSF. For example, on June 26, the Administration announced that the Department of Housing and Urban Development (HUD) was relocating its headquarters into the current NSF building in Alexandria, VA. No announcement was made as to where the current 1,800 NSF employees would work.
This dispute regarding indirect research overhead recovery is separate from the $1 billion in alleged frozen Cornell research grants that are based upon alleged antisemitism and or improper diversity, equity, and inclusion policies.
