This paper discusses the proposal that the National Institutes of Health reduce by 10 per cent the amount that universities are reimbursed for indirect costs associated with its extramural grants. This proposal represents an important policy change and must be seen as part of the total NIH budget, which includes decreased amounts for new research grants, for competing renewals, and for training grants. On the surface a reduction in reimbursement for expenditures for indirect costs may seem desirable, since it gives the appearance of benefiting the overall national research effort by increasing funds for individual research grants. However, such a. . .