Under the Trump administration proposal, the overhead formula falls from a typical level of 50 percent to 60 percent overhead to a capped 10 percent maximum. The overhead money in a contract is meant to help pay for the science, but indirectly, supports the school more generally — it frees up university funds from having to meet those same obligations. Because dollars are fungible, higher overhead dollars could mean more student scholarships, more library books, and possibly more bureaucratic waste, in addition to supporting the specified research.
Although many parts of the Trump budget are “dead on arrival,” overhead funding for universities, whether in health projects or more generally, is a vulnerable target, so this issue will stay with us. It is hard politically to justify such a general transfer to universities when federal money is tight, and when the most prestigious research universities are wealthy, tax-exempt and not trying very hard to boost their enrollments.
Bloomberg has more information if you want to read more.