Department of Defense Implements 15% Indirect Cost Cap on Higher Education Grants

On May 14, 2025, the U.S. Department of Defense (DoD) issued a memorandum announcing the implementation of a 15% cap on indirect cost rates for all new financial assistance awards to institutions of higher education. This decision reflects the DoD’s stated goals of promoting fiscal discipline and repurposing funding toward applied innovation, operational capability, and strategic deterrence.

Under authority granted by 2 C.F.R. § 200.414(c), the DoD will begin capping indirect cost rates at 15% or lower on all new awards, effective immediately. The Under Secretary of Defense for Research and Engineering (USD(R&E)) has been directed to notify the Office of Management and Budget (OMB), issue formal policy guidance, and ensure all future grant solicitations incorporate the newly established cap. 

In addition to prospective changes, the DoD will initiate a department-wide effort to renegotiate indirect cost rates on existing awards to higher education institutions. Where mutual agreement is not possible, the agency may explore lawful options to terminate and reissue awards under revised terms, in accordance with 2 C.F.R. § 200.340(a). All renegotiation efforts are expected to be completed within 180 days of the memo’s release.

The University of Maine is currently monitoring this change and how it may be implemented against current and future awards. Additional guidance will be provided as more information becomes available from the Department of Defense.

The full DoD memorandum can be accessed here: Implementation of a 15% Indirect Cost Cap on Assistance Awards to Institutions of Higher Education (PDF)