The E-rate program, officially known as Universal Service Schools and Libraries Discount Mechanism, was created as a part of the Telecommunications Act of 1996. In the act, a fourth Universal Service Fund program was established to help schools and libraries connect to the Internet.

The program's policies and rules are designed to promote competition between service providers and to give applicants the most cost effective means to connect to the Internet. The E-rate program is funded with $2.25 billion dollars annually from the Universal Service Fund. This program is supported by assessments on telecommunications companies, not the federal budget. The program will continue indefinitely until Congress decides to end it. The E-rate program enjoys broad support from all program stakeholders and Congress.

The program's rules change fairly regularly through Orders issued by the Federal Communications Commission.