Actually the math doesn't work quite like that, but it's a common misconception. 53% indirect costs (overhead) is multiplied on the direct costs rather than the total amount, so it is actually 500K-500K/(1+0.53) = 173K taken by the university assuming the full amount can be charged indirect. In practice, some charges like tuition and equipment do not have indirects, so the actual amount taken by the university would be about 135K +- 35K out of the 500K. So you get about 365K of direct spendable money from the 500K if the overhead rate is 53% (as it is at the University of Tennessee where the author was).

The indirect cost rate is decided by the federal government based on data by the universities, so it's accounted for in the grant award amounts. So it's not as nefarious as it sounds.