The E-Rate program, or more formally the Schools and Libraries Program of the Universal Service Fund (USF), was created by the Telecommunications Act of 1996, and began distributing funding in 1998.  Telecommunications carriers pay into a fund which is then used to subsidize telecommunications and data communications for districts.  The program has provided almost $13 billion to schools and libraries since 1998.  The program is overseen by the FCC and administered by the Schools and Libraries Division (SLD) of the Universal Service Administrative Company (USAC).

Subsidies (called “discounts”) are a percentage of a district’s expenditures on telecommunications and Internet access.  The level of discount ranges from 20% to 90%, and is calculated based on the percentage of students eligible for the USDA's National School Lunch Program (NSLP).  For districts with multiple schools, the discounts for individual schools can be averaged, or schools can apply individually.

NSLP free or reduced	Discount
	Urban	Rural
Less than 1%	20%	25%
1% to 19.5%	40%	50%
19.5% to 34.5%	50%	60%
34.5% to 49.5%	60%	70%
49.5% to 74.5%	80%	80%
Over 74.5%	90%	90%

What Services are Eligible?

The program is intended to reduce the cost of delivering voice, video and data communications to instructional areas of schools and public areas of libraries.  Almost all telephone services (local service, toll calls and long distance), Internet access, and digital lines (ISDN, T-1, frame relay, ATM) are eligible.  For some districts, some of the equipment in their data networks, phone systems and video distribution systems are also eligible.  For more information on eligible services, see the On-Tech presentation What will the E-Rate Fund?  The FCC approves an Eligible Services List each year.  The latest Eligible Services List is for the 2009-2010 program year.

Priority 1 vs. Priority 2

There has been some confusion about whether districts with a lower discount can expect funding.  In order to ensure that all districts receive some money, eligible services were broken into two categories: Priority 1 and Priority 2.  Priority 1 includes all telecommunications services (phone lines, long distance, leased lines, etc.) and Internet access.  Priority 2 included “internal connections,” which includes items like Web servers, network cabling, and phone systems.

If the demand for funding is greater than the available funds — as it always is — first all Priority 1 requests will be funded.  This means that every district, even those with no students receiving free or reduced lunches, will receive a discount on telephone service, Internet access and any digital lines (T-1, ATM, ISDN, frame relay) between locations.  After Priority 1 requests have been funded, the remaining funds are used for Priority 2 requests, starting with the neediest districts.  Districts with a 90% discount have always received Priority 2 funding, while districts with a discount of 80% or less have generally not received Priority 2 funding.  The FCC has been taking steps to distribute Priority 2 funding more equitably, so it seems likely that fin the future, Priority 2 funding will be available to more districts.

Application Process

Schools, districts and libraries must apply for the funding.  The application process includes at least three separate forms, and begins 10 months before the start of the school year.  Once funding is approved, districts can choose to receive the funding as a discount on bills, or pay the full amounts, then receive reimbursement.  For more complete information on the application process, see the On-Tech E-Rate Primer.

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