The lawsuit over the NIH’s 15% indirect cost cap ended in April 2026 when the Trump administration let the deadline to seek Supreme Court review pass, leaving in place a permanent injunction that struck the policy down nationwide. Universities and 22 states won at every stage: a Massachusetts federal judge blocked the cap within hours of its announcement, converted that block into a permanent injunction in April 2025, and the First Circuit unanimously affirmed in January 2026. Federally negotiated indirect cost rates remain in force.
What the NIH Tried to Do
On February 7, 2025, the NIH’s Office of the Director published supplemental guidance to the 2024 NIH Grants Policy Statement imposing a flat 15 percent cap on facilities and administrative reimbursements for all new and existing grants to colleges and universities. It was scheduled to take effect three days later, on February 10.
The guidance replaced the individually negotiated rates that research institutions had maintained for decades with their cognizant federal agencies. The NIH said the change would ensure “as many funds as possible go towards direct scientific research costs rather than administrative overhead,” pointing to the 15 percent de minimis rate available under certain federal cost regulations and to the lower overhead rates paid by private foundations.
The gap between the cap and existing practice was substantial. Negotiated rates at research-intensive universities ran from roughly 30 to 70 percent, averaging about 37 percent across higher education, with many major research universities above 50 percent. In fiscal year 2024, indirect cost payments to colleges and universities totaled about $8.3 billion on a direct cost base of roughly $22.3 billion. A 15 percent cap would have removed an estimated $4 to $5 billion a year from university budgets.
What Indirect Costs Actually Reimburse
Indirect costs, formally known as facilities and administrative costs, cover the institutional expenses that make research possible but cannot be charged to any single grant: laboratory construction and maintenance, utilities, computing infrastructure, hazardous waste disposal, radiation safety programs, institutional review boards and other compliance offices, and the administrative staff who handle grant accounting and reporting.
Universities negotiate their rates through multi-year agreements with a designated federal agency, typically the Department of Health and Human Services for biomedical research institutions. The rates have two components: a variable facilities portion covering physical infrastructure, and an administrative portion that has been capped at 26 percent of modified total direct costs since 1991. The University of Michigan, with a negotiated on-campus rate of 56 percent, estimated it would lose $181 million under the NIH cap. The University of Illinois system projected a $66.8 million reduction, a 71 percent cut to its indirect cost recovery.
Who Sued and on What Grounds
On February 10, 2025, the day the policy was supposed to take effect, three separate lawsuits were filed in the U.S. District Court for the District of Massachusetts. All were assigned to Judge Angel Kelley and proceeded together.
The first was brought by 22 state attorneys general, led by Massachusetts Attorney General Andrea Joy Campbell and Michigan Attorney General Dana Nessel. Commonwealth of Massachusetts v. National Institutes of Health (No. 1:25-cv-10338) argued the cap was arbitrary and capricious under the Administrative Procedure Act, exceeded the NIH’s statutory authority, bypassed required notice-and-comment rulemaking, and violated a congressional appropriations rider that had prohibited the agency from modifying its approach to indirect cost rates since 2018.
The second suit came from the Association of American Medical Colleges, joined by the American Association of Colleges of Pharmacy, the Association of Schools and Programs of Public Health, the Conference of Boston Teaching Hospitals, and the Greater New York Hospital Association. Association of American Medical Colleges v. National Institutes of Health (No. 1:25-cv-10340) raised similar APA claims and added a Fifth Amendment due process challenge, arguing the cap was impermissibly retroactive.
The third, Association of American Universities v. Department of Health and Human Services (No. 1:25-cv-10346), was brought by the Association of American Universities, the American Council on Education, the Association of Public and Land-grant Universities, and 13 individual universities including MIT, Johns Hopkins, the University of Chicago, and the University of California system. It challenged the guidance under the APA, the appropriations rider, and the Appropriations Clause of the Constitution.
How the District Court Blocked It
Judge Kelley acted the same day the suits were filed. On February 10, 2025, she issued a temporary restraining order halting the policy in the 22 plaintiff states. She later expanded that pause to a nationwide scope and, on March 5, 2025, granted a nationwide preliminary injunction blocking the NIH from implementing the cap on any grants.
In her preliminary injunction ruling, Judge Kelley found the plaintiffs had a “substantial likelihood of success on the merits” on multiple grounds. The guidance, she wrote, likely violated existing HHS regulations that require documented justification before deviating from negotiated rates. It likely conflicted with Section 224 of the Further Consolidated Appropriations Act, the rider restricting the NIH from spending money to develop or implement a modified approach to indirect cost reimbursement. And it likely failed to follow required notice-and-comment procedures and was “impermissibly retroactive.”
She also credited the plaintiffs’ evidence of real-world harm, pointing to the “imminent risk of halting life-saving clinical trials, disrupting the development of innovative medical research and treatment, and shuttering of research facilities” and describing the potential injury as “immediate, devastating, and irreparable.”
On April 4, 2025, at the request of both sides, Judge Kelley converted the preliminary injunction into a permanent injunction and vacated the NIH’s supplemental guidance in its entirety. The government appealed to the First Circuit four days later.
How the First Circuit Ruled
A unanimous panel of the U.S. Court of Appeals for the First Circuit, made up of Circuit Judges Lipez, Rikelman, and Howard, affirmed on January 5, 2026, in an opinion by Judge Lipez.
The government’s main jurisdictional argument was that challenges to grant funding belong in the Court of Federal Claims rather than in a regular federal court. The First Circuit rejected that, relying on Justice Amy Coney Barrett’s August 2025 concurrence in National Institutes of Health v. American Public Health Association, which distinguished two kinds of disputes. Challenges to the termination of specific grants are contract-based claims that belong in the Court of Federal Claims. Challenges to agency-wide policies belong in district court under the APA. Because the plaintiffs were attacking the guidance itself rather than the withholding of particular funds, the district court had proper jurisdiction.
On the merits, the panel held the guidance violated both the appropriations rider and HHS regulations. The rider prohibited the agency from developing or implementing a “modified approach” to the indirect cost regulations beyond those in use during the third quarter of 2017. Imposing a uniform 15 percent rate through the agency’s deviation authority was precisely the kind of modified approach Congress had banned; the NIH had never before used that authority to set an across-the-board rate. The HHS regulations, meanwhile, permit deviations only for a “single award or a class of awards” with documented justification, not for an entire grant portfolio. Because those violations were dispositive, the court said it was “unnecessary to reach” whether the guidance was also arbitrary and capricious or required notice-and-comment rulemaking.
Judge Lipez wrote that “the public-health benefits of NIH-funded research are enormous.”
Why the Case Ended
After the First Circuit ruling, the government could have petitioned the U.S. Supreme Court for review. The deadline passed during the week of April 8, 2026, and the Department of Justice filed nothing. That ended a 14-month legal fight and left the permanent injunction in place nationwide.
What This Means Going Forward
Universities continue to receive reimbursement at their federally negotiated indirect cost rates. Fiscal year 2026 appropriations language requires agencies to keep using existing rates and bars significant deviations from negotiated agreements without congressional authorization. The First Circuit’s ruling means any future change has to go through formal rulemaking or legislation rather than unilateral guidance.
The administration has not abandoned the underlying policy goal. Its fiscal year 2027 budget request, released in April 2026, proposes a 12.3 percent direct cut to the NIH budget, from about $47.5 billion to $41.4 billion, and again asks Congress to cap indirect costs at 15 percent and remove the longstanding appropriations rider. A House appropriations bill, H.R. 5304, reported out of committee in September 2025, would cap indirect costs at 30 percent and eliminate the prohibition on modifying rate determination methods. A competing Senate bill would keep the existing prohibition intact. As of early 2026, neither approach had been enacted.
One boundary worth noting: the NIH lawsuit is the best known of four nearly identical disputes, but it did not decide them. The Department of Energy, National Science Foundation, and Department of Defense each attempted the same 15 percent cap on university research overhead in the spring and summer of 2025, and each was separately blocked in the District of Massachusetts. The American Council on Education reported in April 2026 that universities had won all four cases after the administration chose not to seek Supreme Court review of any of them. For the DoD cap, Congress separately intervened through the National Defense Authorization Act for Fiscal Year 2026, which bars the Secretary of Defense from modifying indirect cost rates for grants to universities and nonprofits unless the department first develops an alternative model with the research community.