So if NIH and NSF (maybe?) slash their overhead rates, that’s a huge budget shortfall for research universities. But what might they actually do to fill it?
There are liberal arts colleges that cost about the same in tuition as research oriented institutions, so there is another theoretically feasible model to continue to provide education. (I’m sure those schools get some money from various research grants, but it’s nothing like the scale of UIUC or Stanford or wherever.)
But I’d guess a large part of the overhead that the grants are paying for are things that can’t easily be cut. More buildings with expensive special facilities, more faculty. Maybe some admin staff that could be cut, but probably not a whole lot. But what else is getting covered by the overhead charges? I’d guess there’s at least some cross-subsidy—money is fungible so if you get research overhead to cover facilities then you can spend money on stuff like financial aid grants.
But I don’t know enough about university funding to know what they actually spend money on, or how they might pivot both immediately and in the longer term, if the cuts stick.