For my nonacademic readers: Research at universities is supported largely by grants from federal funding agencies, which are extremely hard to get. Professors in the sciences and engineering at large research universities spend a lot of time applying for grants (writing proposals). Overhead is the portion of external grants that the university takes for the purpose of providing infrastructure and resources for the research to be conducted. The amount left after the overhead is taken off goes into research (e.g. paying graduate student tuition and stipends, paying for chemicals, supplies, etc.) and is called the directs costs of research. At most public universities, overhead is about or a little over 50% of the direct costs (or 1/3 =33% of the total grant), whereas at private schools it can be as high as 75-80% of the direct costs (~44% of the whole grant). The main problem is that many agencies, such as NSF, have a fixed size of the total grant and have had so for a long time; in the meantime, the overhead rates have increased several times. When the universities increase the overhead rate, they are literally squeezing out the direct costs, i.e. the research that is to be done. The more subtle part is that this squeezing-out of the direct costs does in fact hurt the university, as the quality and amount of science done under the university’s name drops; this issue is particularly dire in public schools, which do not have private endowments as a source of internal funds that pick up some of the research costs.
(Another issue is that the overhead funds are sometimes (often?) badly mismanaged, and do not come back to help the research infrastructure at all… But that is an issue for another cartoon.)