If you work in a lab that receives funding from the U.S. federal government, chances are that you’ve heard the term “R01” (pronounced “R – OH – 1”). An R01 is one of the many grant types awarded by the National Institutes of Health (NIH). The R series, or Research Grant, is the most common type for individual labs and Principal Investigators (PIs)—funding equipment, supplies, salaries, and other allowable “direct costs” as well as “indirect costs.” 

Defining “Allowable or Direct Costs”

Per the U.S. Code of Federal Regulations, which outlines how federal funds ought to be managed at non-federal entities, direct costs include expenses explicitly used for the research project like reagents, equipment, publication costs, and salaries of researchers doing the work. The main section regulating how research grants can be used is 2 CFR 200, also known as “Universal Guidance.”

On the other hand, indirect costs (IDCs), also known as “Facilities and Administration” (F&A)—or simply “overhead”—consist of costs not clearly associated with one single project. For example, it is nearly impossible to calculate how much electricity a lab needs per project—instead, IDCs are calculated based on average usage at the institution over the last few years. These rates are readjusted and renegotiated between institutions and the NIH every four to five years.

Indirect cost policy shifts

A recent U.S. federal policy debate that heavily affects research surrounds a proposal by the current federal administration to change each institution’s negotiated IDC rate, which usually ranges from 30 to 70%, to a flat rate of 15%, across all institutions. 

This change would dramatically impact how institutions are structured and how they manage research. For example, services like research cores and resources like IT support are paid through IDCs. If an institution’s IDC rate is lowered so is support for researchers and organizations, including private companies that use these funds to conduct research, forcing them to find alternative services that may be more expensive, less efficient, outside of the U.S., or present other barriers that slow down scientific progress. For example, if a proteomics core housed at an institution closes due to lack of funds, on-campus users would have to use a commercial proteomics service that involves higher cost, slower turnaround, and less-well coordinated collaboration. How would the added costs and time impact research progress?

The proposed policy change failed, partly because the administration tried to apply this 15% flat rate to already awarded funds. Institutions sued the administration because this change violated the terms of their already-signed contracts with the federal government for these funds. Then, the U.S. Federal courts struck down the policy change, allowing the previously negotiated IDC rates to stay in place.

In January 2026, Congress passed a new fiscal year budget for the Labor, Health, and Human Services Agencies, which includes the NIH and the National Science Foundation. Due to advocacy from scientific organizations and their members, including letters, calls, and visits to Congress, explaining how the indirect cost rate change would harm their research and the potential impact on human health, the approved budget included explicit language preventing changes to IDC rates. Your advocacy makes a difference!

As a researcher, it’s important to know your institution’s IDC rate and what the funds cover, so that when you are advocating for continued and expanded research funding, you can tell your elected officials exactly what those funds are used for and what they make possible.

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