N.I.H. Funding and PhD Enrollment

A lesson on fungible costs

Photo by Iñaki del Olmo on Unsplash

Universities are feeling the heat. The Trump Administration has announced that all National Institute of Health (N.I.H.) grants, the backbone of biomedical research money in the United States, will cap overhead spending at 15 percent. The administration argues this could save $4 billion. The courts have put a hold on the plan for now, but universities are reeling. What’s the deal?

N.I.H. money is divided into two categories, direct costs and indirect costs. Direct costs go to salaries for principal investigators, equipment, supplies, and other research costs. In other words, direct costs are put toward the immediate needs of the researchers to accomplish the goal of the grant. Indirect costs, also called overhead, include facility and administrative costs, or costs that are not directly related to the research.

The issue the Trump administration is dealing with is those indirect costs. Mainly, how much is too much? Indirect costs, when used properly, fund areas of a university or lab that aid the research the grant is for. At the same time, indirect costs can fund other aspects of an organization that have nothing to do with the research. In 2024, the N.I.H. spent $32 billion on 60,000 grants. Of that money, $23 billion went to direct costs, while $9 billion went to indirect costs. In other words, on average indirect costs are about 40 percent of direct costs. The Trump administration wants to reduce that to 15 percent.

Contrary to the caterwauling of some researchers and academics, the administration might have a point. A 15 percent camp on overhead is strict, but reasonable. Academics say that the higher overheads are necessary because many costs, such as lab maintenance and administrative roles, are shared across researchers and can’t be directly attributed to any one grant. This excuse does not inspire confidence. Businesses and other organizations have known how to allocate percentages of a single employee’s time to different projects for decades. It isn’t brain science or rocket surgery. The claim that building fees and administrative time can’t be accounted for gives credence to proponents of the 15 percent cap, who say that universities are using money earmarked for indirect costs as a slush fund to further initiatives with no relationship to the grant.

Moreover, this graph from the New York Times makes it clear that there is a wide disparity in the percentage of overhead for different projects:

Clearly there is some abuse occurring. A significant proportion of institutions are already at or below the proposed 15 percent cap, and most are below 40 percent. Other grants, however, are spending almost more on indirect costs than direct costs! It’s hard to argue that those grants that have high overhead aren’t taking advantage of the system. Now those high overhead grants might be due to laziness, where it’s easier to request money for overhead than figure out what percent of an administrator’s time is devoted to a particular research group. Or it could be outright fraud, with money being diverted to areas not associated with biomedical research. Regardless, it would be in everyone’s best interest for those resources to be properly accounted for and billed appropriately.

Another reason to think a lot of those indirect costs are not related to the purposes of the grant is how universities have responded to the decrease in N.I.H. funding. Schools around the country are cutting back on hiring and admissions to their PhD programs. As the New York Times reports, those cuts have come across the board. The University of Pennsylvania will decrease the number PhD students in several departments, including a decreasing admission offers to only seven history students, down from 17, and a reduction in the incoming English PhD class from 9-12 to a maximum of six.

This is curious behavior, to put it charitably. History and English professors don’t get N.I.H. grants. Universities will argue that they are doing so out of prudence or caution, but it’s frankly hard to see how this isn’t a veiled admission that yes, N.I.H. money was subsidizing disciplines in the humanities and social sciences. There can be an honest conversation about how much the government should subsidize those programs, but N.I.H. money has no business funding stipends for history students.

Moreover, the decrease in admissions for PhD students is good thing. For far too long, universities have admitted more doctoral students than was responsible. In fields like history, thousands of students begin doctorate programs every year. They have dreams of becoming tenure-track professors, writing books, and mentoring the next generation of historians. For the majority, however, this is not going to happen. According to a report from the American Historical Association, “only 27 percent of those who received a Ph.D. in history in 2017 were employed as tenure track professors four years later.” Those are not good odds. Granted, some of the remaining 73 percent will break in. But some of those 27 percent will be denied tenure and wash out. In either case, the vast majority of people who get a PhD in history do not make it in academia. There are undoubtedly some who don’t want to, and plan to pursue careers in libraries or government. Most, however, have failed at their goal, and spend 5-10 years getting a degree they won’t ultimately need.

It’s illustrative that the University of Pennsylvania history department claims that “the vast majority of our PhD students have gone on to tenure-track positions”. Yet they only give a list of 37 universities where graduates of the last 20 years have found employment. This is not convincing. Meanwhile, the University of Pennsylvania economics department lists each graduate by name, what university they work at, and if it is a post-doc or nontenure track position. Economics being one of the most marketable PhDs, it isn’t surprising that they are transparent about every graduate while the history department provides a list that doesn’t give current applicants any idea of their chances of success.

The fact is that universities knowingly set up PhD students for failure. Every program should be completely upfront about where their graduates land. My own PhD program, the economics PhD at the University of Colorado Boulder, does just that. It is a good program, but not a top one. It’s usually ranked 40-45 in the US. The department website lists every graduate by name and where they worked after graduation. This was incredibly valuable to me as a prospective student. I knew that if I planned to be a professor at an Ivy-league university, a PhD in economics from CU Boulder was unlikely to get me there. Instead, I had realistic expectations of landing at a regional university. That was my goal, so I enrolled. Hiding the outcomes of recent graduates is shameful behavior, especially at a time when many colleges are decreasing the percentage of instructors in tenure-track roles.

Universities should be on the level with where grant money is going and what outcomes their graduate students should expect. That neither occurs is not in the interests of students, the government, or the universities themselves.