Penn State says NIH funding cuts could have $35M impact, ‘substantial implications’
The National Institutes of Health announced last week it would reduce research funding by lowering the maximum amount it reimburses research institutions for overhead costs, a change Penn State said could cost it about $35 million in funding.
The NIH, the country’s medical research agency, made the announcement on Friday that it will make cuts to grants that support research institutions in the United States — which includes Penn State. The cuts will be made by limiting the amount of “indirect cost recovery” for research projects to 15%, down from an average of about 27% to 28%, the NIH wrote in a memo. The policy was set to go into effect Monday for all new grants from NIH and any new expenses on existing grants, but a federal judge temporarily blocked the new policy.
A coalition of attorneys general from 22 states is suing the Trump administration to stop the cuts.
In a letter to the Penn State community, Andrew Read, senior vice president for research, and Karen Kim, dean of the College of Medicine, said Penn State would be significantly impacted by the NIH’s announcement.
Penn State said if they applied the cuts to the last financial year, it would have led to the loss of about $35.2 million — $18.3 million at University Park and $16.9 million at the College of Medicine. The letter states they expect a similar number for the current financial year.
“The loss of these funds will substantially reduce our ability to conduct groundbreaking research, particularly in the health sciences,” the letter states.
Read and Kim explained that when a university does research on behalf of the federal government, they incur costs (usually called “indirect costs”) for a number of things including research security, research compliance, human and animal subject protections, or personnel, for example.
“These costs are recovered through a negotiated rate between the University and the federal government. This cost recovery does not result in an income stream for research institutions and is not used to subsidize anything else. In fact, universities are not even fully reimbursed for the expenses they incur to provide the necessary infrastructure and support to conduct federal research,” they said.
The NIH said the change will make the rates more in line with what private foundations that fund research provide.
In some cases, foundations don’t offer any indirect costs, according to the NIH.
“Most private foundations that fund research provide substantially lower indirect costs than the federal government, and universities readily accept grants from these foundations,” the NIH said in its memo. “For example, a recent study found that the most common rate of indirect rate reimbursement by foundations was 0%, meaning many foundations do not fund indirect costs whatsoever.”
It said the agency is “obligated to carefully steward grant awards to ensure taxpayer dollars are used in ways that benefit the American people and improve their quality of life.” In a post on X (formerly Twitter), the NIH said of the $35 billion it granted for research, $9 billion of it was used for administrative overhead, or indirect costs. The change will save more than $4 billion a year, it said.
Penn State’s letter went on to state that the government relies on universities to do different kinds of research in a variety of areas in the country’s interest. That includes research aimed at reaching national goals that benefit taxpayers, the letter states, like 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,” Read and Kim said.
Penn State created a webpage for people to stay informed about the impact of executive orders on federal funding. The site, researchsupport.psu.edu/federal-funding-updates/, includes information on the executive orders, agency guidance, recent developments and more.
The university also has a site for community updates related to executive orders.
University leadership is still trying to understand the NIH directive and the potential impacts for Penn State, according to Read and Kim’s letter.
“This proposed change represents a significant shift in funding policy and would have substantial implications for our ability to support federally funded research,” they wrote.
This story was originally published February 11, 2025 at 6:36 AM.
