Study: Despite Warnings from Feds, Universities Still Overcharge U.S. Taxpayers for Students Performing Government-Funded Research

(Alexandria, VA) -- Thanks to ineffective federal oversight and pressure from the higher-education lobby, U.S. taxpayers remain exposed to wildly-inflated bills equivalent to as much as $180,000 apiece for graduate students who work on government-funded research. That's the conclusion of an "Issue Brief" released today by the non-partisan National Taxpayers Union Foundation (NTUF), which found continued abuse of federal rules that allow universities to recover salary and tuition payments to student research assistants.

"In theory, reimbursing universities for the 'reasonable value' of student work on federal research projects can serve everyone's best interests, but there's nothing 'reasonable' about forcing taxpayers to compensate graduate-level assistants at a higher rate than a full Professor," said NTUF Director of Government Affairs and Issue Brief author Paul Gessing. "Federal finger-wagging has so far failed to stop universities from treating the U.S. Treasury like a slush fund from an over-indulgent parent."

American universities, which conduct a large share of government research, have long been permitted to recover the cost of student labor associated with federal contracts and grants, but only if the total amount is "reasonable compensation for work performed." Yet, federal investigations have uncovered significant deviations from this standard. A 1994 Health and Human Services Inspector General audit found that three of four institutions examined (Yale, Rutgers, and Michigan) offered graduate student compensation well in excess of a postdoctoral scholar's starting salary. Shortly afterward, new federal standards of "reasonableness" were established, but a 1999 Government Accountability Office report concluded that the University of California still overcharged federal taxpayers for $19.3 million in excess student compensation.

Gessing noted that subsequently the abuse has worsened, as universities compete to attract student researchers with inflated salaries and seek to maximize their own institutional income by charging higher tuition. For example, Graduate Student Researchers at the University of California, Davis qualify for up to $10,751 of salary, plus up to $23,345 of full tuition remission, at 25 percent time during an academic year of nine months. This is the full-time annual equivalent of $181,845 -- well beyond the salary of most full Professors and six times the annual salary of a Postdoctoral Scholar at UC Davis. Ironically, UC Davis nets $14,694 more in federal reimbursement for each foreign student employed compared to a U.S. national, thanks to the differential in non-resident tuition remission.

According to the study, the solution to this problem does not require new laws or regulations. Existing standards prohibiting compensation of students at a higher rate than postdoctoral scientists, as well as laws against using federal funds to operate a compensation program that discriminates against American citizens, simply need to be aggressively enforced. "Ultimately, the entire role that taxpayers play in higher education needs to be thoroughly re-examined," Gessing concluded. "Until then, federal officials need to wake up from the fiscal nightmare that their sleepy oversight has created."

NTUF is the research arm of the 350,000-member National Taxpayers Union, a non-profit citizen group. Note: NTUF Issue Brief 149, Campus Cash-In: How American Universities Overcharge Federal Taxpayers for Student Labor, is available online at