Where Federal Research Funding Stands at Mid-2026: A round-up of the current state of play

By guest contributor Anna Campana, Sr. Pre-Award Research Administrator, R1 Cancer Center, with Sarah Trimmer, Founder, The Optimum Department

Since World War II, federal research funding has flowed to universities through a stable set of rules — negotiated indirect cost rates, peer-reviewed merit review, and statutory frameworks built up over decades. As that funding grew, academic institutions that had historically been built around teaching reorganized themselves around the need to attract research talent and encourage the continued influx of federal funds.¹ That stability proved durable: even the threat of a 10% indirect cost cap during President Trump's first term didn't shake it.

Donald Trump's second term has moved further and faster than most administrators expected. A decline in new project funding, massive numbers of grant terminations, perverse federal compacts on targeted universities, new research-security requirements, and a set of indirect-cost workarounds are all already in motion. And behind all of it, our constitutional system is now being shaped through two distinct channels at once: a series of executive actions that avoid Congressional oversight, and a parallel set of moves by Congress itself, working through its own appropriations process. Both are unfolding right now, simultaneously, and that in itself is the difficulty: institutions of higher education (IHEs) know how to track an appropriations cycle, and they know how to track a major regulatory rewrite, but there's little precedent for both running at full speed, in the same season, against the same system, which is exactly why it's so hard to keep track of where things stand. These factors, of course, are also occurring at the same time as institutions are pursuing litigation, a costly endeavor.

The funding cliff

After partial success in terminating and freezing ongoing grants in federal court, the Government has limited future grants and contracts to IHEs. The federal fiscal year crossed the six-month timepoint on April 1, and academic research is facing a federal funding cliff (see Table 1). Along with the appropriations bottleneck by Russell Vought at the Office of Management and Budget (OMB), agencies are actively restricting new awards, censoring topics, and withholding funding for unknown reasons, with some universities doing better than others.

 Table 1. DHHS Select Agencies: Total Funding 2020-2026 for New Projects

Note: Department of Health and Human Services (HHS) data was derived from NIH Reporter on June 4, 2026. New project counts held roughly steady from 2020 through 2023, then began a real decline: 18,626 in FY2023, 17,623 in FY2024, 14,649 in FY2025. The FY2026 line looks like a cliff, but it's a partial-year figure. The pull date falls about two-thirds of the way through the fiscal year. Prorating for that, new awards are still running at roughly a third of FY2025's pace by project count and a fifth by dollar volume. The decline is real; it's just not quite as vertical as the raw line implies, as FY2026 isn't over.

Compacts, false claims exposure, and research security

In fall 2025, the administration pressed universities to sign compacts that would have traded funding stability for restrictions on institutional governance and speech; most declined. The administration has since turned to a Justice Department memo pressing compliance with Executive Order 14,173, on “merit-based opportunity”. A parallel False Claims Act push, built on a similar order EO 14,398 on “DEI discrimination,” has already produced large settlements from businesses, and it's reasonable to expect universities will face the same choice; settle or fight it out in federal court.

Separately, DOD and other agencies have restricted investigators from collaborating with entities tied to the "1286 list" (foreign talent-recruitment programs flagged as security risks under Section 1286 of the National Defense Authorization Act) or from using equipment from a specified set of companies in fundamental research — a new constraint reaching across disciplines. DOD's Component Decision Matrix now governs how these mitigation decisions get made; penalties for noncompliance remain unclear. These DOD-specific measures are one piece of a much broader, fast-moving research-security environment spanning both administrations: NSPM-33, issued in the final days of Trump's first term and implemented through 2022 guidance, already requires federally funded researchers to complete training on malign foreign talent programs and disclose all "other support," domestic and foreign, while Biden-era critical-infrastructure directives like NSM-22 add a further, adjacent layer on top of the China-entity restrictions. The cumulative compliance load on IHEs has grown substantially in a short window.

Indirect costs: workarounds, a reversion, and court victories

After losing in court and being blocked by FY2026 appropriations language from capping indirect cost rates directly, agencies found ways to squeeze indirect cost recovery without touching the rate itself. In 2025, DOD's CDMRP programs switched their funding-announcement budget maximums from direct costs to total costs — a change that leaves negotiated rates untouched but shrinks the direct-cost room available to institutions with higher rates, since both direct and indirect costs now compete for the same capped pool. Some DOE and NSF programs have adopted similar total-cost ceilings.

NIH's move this spring was different in kind. NOT-OD-26-072 (April 2026) reverts the subaward indirect-cost threshold from $50,000 back to $25,000 and the de minimis rate for institutions without a negotiated rate from 15% back to 10%, contradicting the current definition of Modified Total Direct Costs under the 2024 Uniform Guidance revisions. NIH's own justification cites FY2026 appropriations language (P.L. 119-75, Sec. 224) requiring it to apply indirect cost provisions "in the same manner" as FY2017.² That same statutory language is what the federal First Circuit Court of Appeals relied on in striking down NIH's earlier attempt at a blanket 15% indirect cost cap.³ That ruling became final in April 2026, and now the 60 day window for the government to seek further appeals is closed. The cases against all four agencies attempting to limit indirect cost rates were a big victory for IHEs against attempt by the federal government to dismantle established rate agreements.⁴ However, as the current environment suggests, fighting the government's push to deconstruct 85 years of research and development partnerships with IHEs is not over.

The OMB rulemaking

The broader and more consequential track is OMB's proposed rewrite of the Uniform Guidance (2 CFR Part 200), which Executive Order 14,332 directed the agency to undertake. Unlike the indirect-cost-specific policy notices described in the preceding section, this proposed rule reaches into the terms of the federal grant relationship more broadly: it makes grants and contracts easier to terminate and expands recipients' exposure under the False Claims Act. On indirect costs specifically, the White House insists current rates and the negotiation process are untouched, and the rule itself states OMB "does not intend to consider or respond to" comments on the negotiation system. But the proposed rule still attempts to dismantle the current system by directing agencies to prefer lower-rate institutions "all else being equal," a judgment left to political appointees. Furthermore, the proposed rule disallows several cost categories including journal subscriptions, organizational memberships, and publication or printing costs absent prior agency approval, along with any direct or indirect costs tied to collaboration with covered foreign countries or entities.⁵

Under the Administrative Procedure Act, OMB only must consider comments and explain its reasoning and is not obligated to adopt any particular comment's substance. But the grounds for a court to vacate a final rule as arbitrary and capricious under 5 U.S.C. § 706(2)(A) are broader than comment-responsiveness alone: failure to consider an important aspect of the problem, internally inconsistent reasoning, or an unexplained reversal of position can all support that finding, alongside a separate theory that the rule exceeds OMB's statutory authority under § 706(2)(C). OMB grounds the rule in 31 U.S.C. §§ 503(a)(2) and 6307 — financial-management coordination authority it has administered through guidance, not binding regulation, for four decades.⁶ The rule is slated to take effect October 1, 2026; expect litigation regardless of what survives to that date. Comments are open through July 13. COGR, the research-university association, has requested additional time to review the rule, but it is unlikely that the timeline will be extended at this point. A temporary or permanent injunction can derail this train until Congress can weigh in and set limits on the scope of OMB authority.

The legislative track: FY2027 appropriations

On June 9, the House Appropriations Committee approved the FY2027 Labor-HHS-Education Appropriations bill 34 to 28 in committee; the bill still needs the full House, the Senate, and conference before it becomes law.

The cuts are steep and concentrated in prevention. CDC funding decreases by approximately $1.04 billion, with HIV/AIDS, hepatitis, STI, and TB prevention down more than 60% (from $1.384 billion to roughly $566 million). The bill eliminates CDC's School Health programs and Prevention Research Centers, cuts Nutrition, Physical Activity, and Obesity funding by nearly 70%, and zeroes out the climate-and-health program and firearm injury research. AHRQ is eliminated entirely. HRSA loses about $873 million, mostly from the Ryan White HIV/AIDS Program and the Maternal and Child Health Bureau. Title X family planning funding goes to zero. Against all that, NIH's topline is preserved and nominally increased — $48.82 billion against the President's $42.97 billion request, though a preserved topline doesn't capture how much of it the administration can still slow-walk grant funding in practice.

Two provisions inside the bill are worth tracking on their own. Section 214 authorizes the NIH Director to fund certain research through "other transactions" rather than ordinary grants, explicitly exempt from standard peer review and advisory council procedures, with Congress notified only after the fact for transactions over $100 million. A real, if narrow, carve-out from merit review, but one Congress itself authorized rather than one imposed by the executive branch. Section 223 caps NIH facilities-and-administration costs at 30% of an award (i.e., the effective rate), but only for institutions subject to the endowment excise tax under IRC § 4968 — broadly, private universities with a large endowment per student. Public institutions aren't affected. And even for the private universities it does target, the practical bite is uncertain, since the cap is measured against the award rather than against direct costs, the metric the negotiated-rate system uses.

An October 1 collision course

Against a funding pipeline already down to a third of last year's pace, the executive branch continues pressing on indirect costs, research security, and grant terms through notices and the proposed OMB rule. Congress, through ordinary appropriations, is moving in parallel on its priorities, protecting NIH's topline while cutting CDC and HRSA prevention work, and carving out narrow exceptions to peer review and indirect cost recovery. Courts have already intervened decisively once, on the 15% cap. Whether they do so again depends on the final rule's language and on what the FY2027 bill looks like after the Senate and entire conference are done with their respective work. We’re converging on an October 1 collision course: the rule's effective date, and the first day of the new fiscal year. What happens next is anyone’s guess.

Notes

1. Roger L. Geiger, American Higher Education Since World War II: A History (2019). (Princeton Univ. Press, 2019).
2. Further Consolidated Appropriations Act, 2026, Pub. L. No. 119-75, div. B, § 224. NIH frames this reversal as Congress holding NIH to the older standard, not the agency or OMB improvising beyond its authority.
3. Massachusetts v. NIH, No. 25-1343 (1st Cir. Jan. 5, 2026)
4. Ass'n of Am. Univs. v. Dep't of Energy, 2025 WL 1414135 (D. Mass. May 15, 2025); Ass'n of Am. Univs. v. Nat'l Sci. Found., 2025 WL 1725857 (D. Mass. June 20, 2025); Ass'n of Am. Univs. v. Dep't of Def., No. 1:25-cv-11740 (D. Mass. Oct. 15, 2025).
5. Mark Barnes et al., OMB Proposed Revisions to the Uniform Guidance: Key Takeaways for Award Recipient Organizations, Ropes & Gray LLP Alert (June 2, 2026), redline at https://www.ropesgray.com/-/media/files/alerts/2026/06/20260602_hc_omb_alert_redline.pdf
6. 31 U.S.C. § 6307 (1982) ("the Director of the Office of Management and Budget may (1) issue supplementary interpretative guidelines to promote consistent and efficient use of procurement contracts, grant agreements, and cooperative agreements").