National Science Foundation faces lawsuit over 15% indirect research cap

  Dive Brief:

• A group of universities and higher education associations is suing the National Science Foundation over its new cap on reimbursement for indirect research costs for all future college grants.
• In court documents filed Monday, the plaintiffs — led by the American Council on Education, the Association of American Universities and the Association of Public and Land-Grant Universities — allege the unilateral 15% cap, which took effect May 5, violates the law in “myriad respects” and that its effects will be “immediate and irreparable.”
• The new lawsuit follows two other legal challenges over similar caps implemented by the National Institutes of Health and the U.S. Department of Energy — both of which have been blocked, at least temporarily.

Dive Insight:

NIH implemented the first federal cap on indirect research costs in February. Colleges and higher ed groups sued, and a federal judge permanently blocked the agency’s plan last month. 

In the ruling, the judge said NIH unlawfully implemented the cap and violated constitutional prohibitions on applying new rules retroactively. The Trump administration quickly appealed the ruling, and the case is ongoing.

Next came the Energy Department. In April, the agency announced the same 15% cap on indirect research costs, alleging the plan would save taxpayers $405 million annually. Again, colleges sued, and a federal judge blocked the plan — albeit temporarily — while the lawsuit moves forward.

The ACE, AAU and APLU are plaintiffs in both cases.

Now NSF has introduced its own cap, to the chagrin of colleges and higher ed experts. When announcing the 15% cap, the agency argued the move would streamline and add transparency to the funding process and “ensure that more resources are directed toward direct scientific and engineering research activities.”

But the new lawsuit argues that NSF’s policy echoes the other agencies’ attempts, to deleterious effect.

“NSF’s action is unlawful for most of the same reasons, and it is especially arbitrary because NSF has not even attempted to address many of the flaws the district courts found with NIH’s and DOE’s unlawful policies,” it said. 

Like the lawsuits against NIH and Energy Department’s policies, the plaintiffs allege that the NSF’s cap oversteps the agency’s authority.

“It beggars belief to suggest that Congress — without saying a word — impliedly authorized NSF to enact a sweeping, one-size-fits-all command that will upend research at America’s universities,” it said.

In fiscal 2024, Congress gave NSF $7.2 billion to fund research and related activities. In turn, the agency funded projects at 1,850 colleges — more than 1 in 4 of the higher education institutions in the U.S. eligible to receive federal dollars.

That year, NSF awarded Arizona State University, one of the plaintiffs, 172 awards worth a total of $197.5 million in anticipated and obligated funding, according to court documents. Prior to the NSF’s new policy, the institution negotiated a 57% rate for indirect costs in fiscal 2026. 

The University of Illinois, another plaintiff, received just over $129 million in NSF funding in fiscal 2024 — making the agency its biggest funder — and negotiated an indirect research funding rate of 58.6%.

The university said in court documents that it has received the most NSF funding of all U.S. colleges for six years in a row, and it is poised to lose more than $23 million a year if the agency’s new cap is allowed to continue.

The college plaintiffs are:

• Arizona State University.
• Brown University, in Rhode Island.
• California Institute of Technology.
• The University of California.
• Carnegie Mellon University, in Pennsylvania.
• The University of Chicago.
• Cornell University.
• The University of Illinois.
• Massachusetts Institute of Technology.
• The University of Michigan.
• The University of Minnesota.
• The University of Pennsylvania.
• Princeton University, in New Jersey.

The lawsuit also cited an attempt by the first Trump administration to cap rates for indirect research at a federal agency. In 2017, the White House proposed cutting the cap to 10% for all NIH grants. Congress – then under Republican control as it is now — “identified serious problems immediately” and took “swift and bipartisan” action against the proposal, the lawsuit said.