Wasteful Spending on Consultant Fees Found in E-Rate Program
The Universal Service Fund (USF) was created in the 1996 Telecommunications Act to administer the Lifeline, High-Cost, Rural Healthcare, and E-Rate programs and help increase access to broadband. The USF is administered by the nonprofit Universal Service Administrative Company (USAC), which was created by the Federal Communications Commission (FCC).
The October 15, 2026, the United States Court of Appeals for the Fifth Circuit decision in Consumers’ Research et al v. the Federal Communications Commission found that because Congress didn’t authorize the FCC to establish USAC, “the agency violated the Government Corporation Control Act (“GCCA”) by creating the corporation.” The court invalidated the USF’s 2025 fourth quarter contribution factor of 38.1 percent. The contribution factor for the fourth quarter of 2026 is now set at 42 percent, which is 14 percent greater than the 37 percent top marginal income tax rate.
That is not the only problem with the USF. An October 14, 2026, Senate Commerce, Science, and Transportation Committee report that out of the $2-$3 billion in E-Rate funds spent each year to subsidize internet services and infrastructure, schools and libraries spent between $200 million and $400 million on consultants to assist them in navigating the “byzantine application, bidding, and reimbursement process.” The report revealed that “these paid intermediaries are associated with applications for roughly 82 percent of E-Rate funding commitments.”
The committee acknowledged that the complex application process led schools and libraries to hire consultants but determined there is limited transparency on pricing, which also varies across the country. Their recommendations for reform include reducing waste, fraud, and abuse and reliance on consultants by simplifying the application process; tying eligibility to enrollment and student poverty-level information in other federal programs; increasing pricing transparency of compensation for consultants; freezing pilot programs and other initiatives that would expand the E-Rate program until wasteful spending is addressed; and, prohibiting USAC board members from having an direct financial interest in the USF.
On October 9, 2026, Citizens Against Government Waste filed comments in the FCC’s open E-Rate docket suggesting that funding for the E-Rate program should not duplicate other broadband funding opportunities or private sector investments. CAGW agrees with the Senate committee report that the FCC should evaluate how best to streamline the application process to help schools and libraries obtain funding without the need for costly consultants that are driving up the cost of the program and diverting funds from the E-Rate’s intended purpose.
