Court Blocks Pentagon From Cutting Funding for Educational Institutions

Slashing the funds would ‘badly undermine scientific research’ at American universities, the plaintiffs said in their complaint.

Defense Secretary Pete Hegseth testifies before the Senate Appropriations Subcommittee on Department of Defense on Capitol Hill in Washington on June 11, 2025. Madalina Vasiliu/The Epoch Times

A federal judge has blocked the Department of Defense (DOD) from implementing a limit on the agency’s research funding to academic institutions, according to a June 17 temporary restraining order issued by the court.

The issue stems from a May 14 DOD memo announcing its plan to restrict funding for indirect costs in research projects undertaken by educational institutions to a maximum of 15 percent. In a June 12 memo, the DOD confirmed the implementation of the rate cap.

The DOD provides financial awards to higher educational institutions to conduct research and development. As part of these awards, the department also funds “indirect costs” incurred by the institutions, with costs falling into two categories: facilities and administration. Facility costs include those related to buildings and equipment, while administrative expenses are related to office and personnel.

The DOD typically negotiates with the institutions the percentage of indirect cost burdens it would have to bear.

Under the new policy, which came into effect on June 12, the 15 percent limit was applied to all new financial grants from the DOD. For funds already granted, the department set a deadline of Nov. 10 to renegotiate, bringing down the indirect cost rate cap to 15 percent.

On June 16, multiple educational institutions, as well as groups including the Association of American Universities, filed a lawsuit against the DOD in the District Court for the District of Massachusetts, challenging the rate cap policy.

A day later, District Court Judge Brian E. Murphy sided with the plaintiffs, issuing a temporary restraining order banning the DOD and Defense Secretary Pete Hegseth from implementing the “immediately effective portions of the Rate Cap Policy, i.e., those portions implementing a 15 percent cap for all awards issued on or after June 12, 2025.”

The order made no mention of DOD’s 15 percent limit on existing awards, for which the Department has set aside time until November to renegotiate.

In their lawsuit, the plaintiffs said that under the current mechanism, individual institutions negotiate with the government on indirect cost rates, which “often fall between 50 percent and 65 percent.” This process is now targeted to be replaced with an “across-the-board rate of 15 percent.”

“The DOD policy contravenes applicable law and regulations multiple times over and does not come close to satisfying the Administrative Procedure Act’s requirements for reasoned decisionmaking,” the complaint said.

“If DOD’s policy is allowed to stand, it will stop critical research in its tracks, lead to layoffs and cutbacks at universities across the country, badly undermine scientific research at United States universities, and erode our nation’s enviable status as a global leader in scientific research and innovation,” it argued.

The DOD justified the rate cap in its May 14 memo, stating that implementing the threshold would save the department up to $900 million annually.

“Our objective is not only to save money, but to repurpose those funds toward applied innovation, operational capability, and strategic deterrence. We owe it to our Service members, and we owe it to the American people,” the memo said.

Complying With Court Order

Following the court decision, the office of the Under Secretary of Defense for Research and Engineering said in a June 18 notice that the DOD will comply with the terms of the temporary restraining order (TRO) as long as it remains in effect.

“Additionally, DoD will pause efforts to renegotiate rate caps for existing awards to institutions of higher education for the duration of the TRO,” it said.

In the May 14 memo, the DOD said the department manages the “most critical budget” in the federal government—the budget spent on defending the country. As such, the department is obligated to say “no to waste,” it said.

The DOD rate cap decision follows President Donald Trump’s executive order on Feb. 26 that asked departments to review all grants and contracts for “waste, fraud, and abuse.”

Similar to the DOD decision, the National Science Foundation has also taken action to limit funding for indirect costs granted for research to educational institutions to 15 percent.

The move was challenged by 16 states in a May 28 lawsuit. The case is still moving through the court.