The program provides discounts to assist schools and libraries in the United States to obtain affordable telecommunications and internet access.
Discounts for support depend on the level of poverty and the urban/rural status of the population served and range from 20% to 90% of the costs of eligible services.
A 2006 case study performed by the Benton Foundation found that E-Rate funding had a direct impact on classroom internet connectivity in four cities.
[5] An evaluation of E-Rate in California by Goolsbee and Guryan showed a 68% increase in classroom connectivity per teacher but could not identify any impact on student achievement.
[7] The Schools and Libraries portion of the Universal Service Fund, more widely known as E-Rate, was authorized as part of the Telecommunications Act of 1996, section 254.
[8] More generally, the FCC was directed to establish rules "to enhance... access to advanced telecommunications and information services for all public and nonprofit elementary and secondary school classrooms, health care providers, and libraries".
The FCC determined that "telecommunications services, internet access, and internal connections", including "installation and maintenance", were eligible for discounted rates.
As a part of their applications, schools and libraries were required to conduct an assessment of their current technology resources and explain how they utilize them for their educational mission.
In order to preserve low-cost local phone service, companies are only permitted to increase interstate revenues to recoup their USF contribution costs.
[13]: 12 The FCC also directed NECA to create two unaffiliated corporations to manage the schools and libraries and rural health care programs.
They viewed the inclusion of internal connections and $2.25 billion budget as excessive and a drain on resources needed to achieve other aspects of universal service.
Two such members, Representative Tauzin and Senator Burns, proposed unsuccessful legislation in the 106th Congress to end E-Rate and replace it by a block grant program administered by the Commerce Department.
Several other pieces of legislation have been introduced that keep E-Rate but change the funding mechanism to avoid a direct impact on local phone service.
[1]: 5–7 In 2002, a report on Universal Service Fund from the FCC's Office of Inspector General found that E-Rate had a "lack of resources for effective oversight", "inadequate competitive bidding requirements", and "no suspension or disbarment process" for schools, libraries, or companies with a history of fraud.
[29]: 3–6 In response, congress requested a Government Accountability Office report on the health of E-Rate and planned hearings on the matter.
The subcommittee found a multitude of irregularities: purchases were being made with fraudulent documentation and without competitive bidding; inadequate strategic technology plans were accepted and led to unused, wasted resources; and no protections were in place to prevent gold plating ("procurement of technology goods and services far beyond reasonable school district needs and resources") and many other forms of abuse.
[33] In November 2010, Hewlett-Packard settled a lawsuit for $16.25 million concerning contractors illegally giving gifts to school officials in exchange for contracts on E-rate funded equipment.
[39] The fifth circuit ruled that E-rate was outside the scope of the False Claims Act, forcing the Universal Service Administrative Company to find other legal justification for the pricing enforcement.