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This sounds like very bad behavior, sorry this happened to you.

What did the institution claim the justification was?

Taking an extra cut from a student, a group who are already generally pretty poor, is peak scumbag.

It's called indirect cost overhead. Universities take anywhere from 0-100% (yes, you read that 100% right) of money they take in.

It’s not that bad. They take 0-100% overhead on top of money charged to grants. That means they take 0-50% of the money coming in.

I think that's really bad. I've never seen that high of overhead working private sector.