Please note that, as a result of the Second E-rate Modernization Order, the Two-in-Five rule only applies to Funding Years 2005 through 2014.

* Applies to the Internal Connections category only *

The Two-in-Five Rule states that an entity can only apply for and receive E-rate funding for internal connections two out of every five funding years. This rule does not include any priority one services (telecommunications and internet access) or any basic maintenance funding requests. The rule was initiated in Funding Year 2005 and applies to any funding year proceeding.

Entities applying for internal connections will need to carefully plan ahead regarding future internal connections projects. For any internal connections projects planned to be completed throughout a period of several funding years, an entity may want to combine the projects into one funding year’s requests, in order to avoid missing out on any E-rate funding for those projects.

Also, it is important to be specific when filing the E-rate application form 471. If an approved funding request for internal connections is cancelled (via Form 500),without any products/services ever being delivered, then that request will not count as one of the two years for the site or sites included in that particular funding request. Because of this option to cancel, it is in the best interest of the applicant to break out all internal connection funding requests by site on their form 471 application. This will allow for an applicant to cancel an internal connections project at a specific site if needed. (Also, note that if a funding request is denied, then the sites associated with this request will not be docked for using one of their two out of five years).

Because of the Two-in-Five Rule, adjustments may have to be made by applicants looking to apply for internal connections each year, but this rule may also allow for additional funding to become available for internal connection requests. With this rule in place, it is likely to see less funds for internal connections requested in future funding years. This will possibly allow future discount rates, at which USAC funds internal connections, to drop lower than the average for a funding year. In turn, this may allow entities, which have not been able to receive internal connections because of a lower discount rate, to obtain funding for internal connections. 

The Two-in-Five Rule is also known as the "Two out of Five Rule" or the "2/5 Rule"