Indirect costs are costs incurred by an organization that are not readily identifiable with a particular project or program but are nevertheless necessary to the operation of the organization and the performance of its programs. The costs of operating and maintaining facilities, depreciation, and administrative salaries are examples of the types of costs that are usually treated as indirect costs.
"Restricted Indirect Cost Rates" are used with grant programs that restrict expenditures to those that supplement but do not supplant state or local effort. ESEA and IDEA federal programs use the restricted rate.
"Non-Restricted (or Unrestricted) Indirect Cost Rates" apply to federal programs that allow federal funds to supplement and/or supplant local funds. The Child Nutrition Program (school lunch) uses the non-restricted rate.
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Certification of 2026/27 Indirect Cost Rates
The U.S. Department of Education Indirect Cost Division provided guidance to NDE when Indirect Cost Rates (ICR) resulted in unreasonably high Restricted and Unrestricted ICRs for ESUs and School Districts.
In order to certify reasonable Restricted ICRs, the USDE Indirect Cost Division provided the following Federal Restricted Rate Citations for the certification of Restricted Indirect Cost Rates:
Sections 76.564 through 76.569 apply to programs with a statutory requirement prohibiting the use of Federal funds to supplant non-Federal funds, and to subgrants under these programs.
(a) An indirect cost rate for a grant covered by §76.563 or 75.563 is determined by the following formula: Restricted indirect cost rate = (General management costs + Fixed costs) ÷ (Other expenditures)
(b) General management costs, fixed costs, and other expenditures must be determined under §§76.565 through 76.567.
(c) Under the programs covered by § 76.563, a grantee or subgrantee that is not a State or local government agency
(1) Must use a negotiated restricted indirect cost rate computed under paragraph (a) of this section or cost allocation plan that complies with the formula in paragraph (a) of this section; or
(2) May elect to use an indirect cost rate of 8 percent of the modified total direct costs (MTDC) base if the grantee or subgrantee does not have a negotiated restricted indirect cost rate. MTDC is defined in 2 CFR 200.1. If the Secretary determines that the grantee or subgrantee would have a lower rate as calculated under paragraph (a) of this section, the lower rate must be used for the affected program.
(d) Indirect costs that are unrecovered as a result of these restrictions may not be charged directly, used to satisfy matching or cost-sharing requirements, or charged to another Federal award.
In accordance with the Federal Regulation 76.564, NDE has capped the Restricted ICRs at 8% for ESUs and Districts.
NDE is also following recommendations from USDE Indirect Cost Division for the Unrestricted ICRs for ESUs and Districts. These rates were also determined to be excessive and have been capped at the prior year’s average.
- ESU Unrestricted ICRs are capped at 13.41%
- District Unrestricted ICRs are capped at 15.49%
A common question about coding related to Indirect Cost revolves around how to determine whether a cost should be coded as a subaward/subcontract (Object codes 395 and 396) or would be more appropriate coded as a professional service (Object code 320).
A descriptive chart provided by the USDE Indirect Cost Group details the difference
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If you have any questions concerning Indirect Cost Rates, please contact:
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