If you are a school or library seeking E-Rate discounts, a rural health care provider, a Lifeline provider serving low-income households, or a carrier deploying networks with high-cost support, you deal with the Universal Service Administrative Company (USAC)—the private, not-for-profit corporation that administers the Federal Communications Commission's (FCC) Universal Service Fund (USF). On July 16, 2026, the FCC released a draft Notice of Proposed Rulemaking (NPRM), Maximizing Efficiencies in Universal Service Administration (WC Docket No. 26-173), that puts nearly every aspect of that relationship on the table: who USAC can audit, how it calculates money it claws back, whether you must repay disputed funds while your appeal is pending, whether your community keeps a dedicated seat on USAC's Board of Directors—and whether USAC remains the USF's administrator at all.

The draft has been circulated for consideration at the FCC's August open meeting on August 6. The contents of the NPRM remain subject to change. If adopted, comments will be due 30 days after publication in the Federal Register, with reply comments due 60 days after publication.

How We Got Here

The USF, established by the FCC under the authority granted to the Commission by Congress in section 254 of the Communications Act of 1934, is intended to ensure the availability of affordable telecommunications services for consumers in high-cost areas, low-income consumers, eligible schools and libraries, and rural health care providers. The USF consists of four programs, each administered by USAC:

1. the High Cost program, supporting eligible telecommunications carriers serving high-cost areas;
2. the Schools and Libraries program, known as E-Rate, provides discounted telecommunications services, internet access, and internal connections;
3. the Low Income program (Lifeline), assisting low-income customers with discounted installation and monthly broadband and telephone service; and
4. the Rural Health Care (RHC) program, providing discounted services to rural health care providers.

USAC also administers the contributions mechanism—billing and collecting the payments from telecommunications carriers that fund the four programs—and was tapped to administer pandemic-era appropriated programs, including the Emergency Broadband Benefit Program, the Affordable Connectivity Program, and the Emergency Connectivity Fund.

USAC's function is purely administrative. USAC operations are prescribed by FCC regulations and subject to Commission oversight. USAC has no authority to make policy or interpret unclear provisions of the statute or rules, and must seek guidance from the FCC when the law is unclear.

USAC was designated the USF's permanent administrator in 1998, and, in the FCC's words, "no comprehensive reform of USAC has been conducted" since. On April 15, 2026—as part of what the FCC describes as its "top-to-bottom review" of the USF programs—the FCC's Wireline Competition Bureau and Office of the Managing Director released a Public Notice seeking comment on potential reforms to USAC's operations and management (USAC Reform Public Notice, DA 26-367, CC Docket Nos. 96-45, 97-21). Commenters in that proceeding highlighted three themes the FCC now carries into the NPRM:

1. the need for more transparency and efficiency in USAC's decision-making and review processes;
2. support for uniform audit procedures across the USF programs; and
3. recommendations that USAC Board members be selected for expertise in financial management, audit, risk management, information security, and program administration rather than solely as nominees of stakeholder groups.

What the Draft NPRM Proposes

The NPRM seeks comment in four areas:

1. the processes USAC uses today to administer the USF and the FCC's oversight of those processes;

2. the structure of USF administration (USAC's role and responsibilities);

3. the operating costs of USF administration; and

4. the impact of USAC's Board of Directors on USF administration.

Commenters are asked to make specific recommendations, discuss costs and benefits in specific rather than general terms, and note whether their recommendations require rule changes.

Speed and Transparency of USAC Operations

The FCC asks which USAC processes need streamlining to promote transparency, accountability, and cost-effectiveness, noting that when USAC was appointed permanent administrator in 1998, the FCC determined that a performance review would help ensure efficient, effective, and competitively neutral administration. The NPRM asks whether such reviews should now occur regularly and whether stakeholders should have a formal mechanism to raise concerns about USAC's processes.

The FCC offers two concrete proposals. First, the FCC proposes to require USAC to publicly report turnaround times or other responsiveness metrics. Second, the NPRM proposes to require USAC to monitor upcoming filing deadlines and proactively communicate with individual stakeholders about their filing status before deadlines pass. [The FCC also "remind[s] stakeholders that it is their responsibility to ensure timely compliance with all filing deadlines," and a lack of notice from USAC "will not excuse or cure a failure to timely file."]

The NPRM also asks whether the FCC should establish deadlines or "shot clocks" for specific USAC processes, such as application review, analogous to the FCC's informal 180-day timeline for reviewing license transfers in complex mergers. This is a change that several commenters—including WISPA, the Schools, Health & Libraries Broadband (SHLB) Coalition, and the Small Company Coalition—urged in response to the earlier Public Notice.

Notably, the NPRM repeatedly asks whether artificial intelligence (AI) should be used in USF administration to reduce operational turnaround times and costs, to respond to stakeholder questions, to review applications, audits, and appeals, and in document review for audits and program compliance.

Audits and Recoveries: The Highest-Stakes Section for Program Participants

USF recipients are subject to random and risk-based compliance audits under the Beneficiary and Contributor Audit Program (BCAP), which the FCC directed USAC to conduct in 2010. The FCC notes that in 2025, the Wireline Competition Bureau issued six orders affirming USAC audit findings, saving ratepayers over $9 million.

Schools, libraries, health care providers, and service providers might want to give close attention to the following:

Direct audit authority over non-carrier beneficiaries.

The FCC proposes to amend its rules (section 54.707) to explicitly include non-carrier beneficiaries—"i.e., schools, libraries, health care providers"—within USAC's audit authority. The current rule text mentions only "contributors and carriers." The proposed rule would also authorize USAC to suspend or delay discounts, offsets, and support if a "contributor, carrier, or beneficiary fails to provide adequate verification."

Extrapolated recoveries.

The FCC proposes to codify USAC's ability to calculate recoveries by extrapolating from a statistically valid sample of disbursements—proposing a 95 percent confidence level and 5 percent margin of error. [In practice, this means the sample must be large and representative enough that the error rate found in it can be confidently applied to the recipient's full set of disbursements.] Rather than auditing every disbursement, USAC could audit a sample and apply the error rate to a recipient's entire funding population.

The FCC asks what guardrails would ensure samples are statistically valid, whether auditees should be able to review and challenge the methodology, and whether auditees should be permitted to demonstrate that improper disbursements outside the sample were less frequent than within it. The NPRM acknowledges that Funds for Learning cautioned that extrapolation "should not apply broadly to recovery actions where funding requests are heterogeneous," and asks specifically whether extrapolation across different procurements would be permitted in E-Rate and Rural Health Care program, "even though each procurement is based on a different competitive bidding process."

A de minimis audit exemption.

The FCC asks whether USF recipients receiving less than a certain amount of support per year should be exempt from random audits. If so, the NPRM asks what that threshold should be and whether the threshold should accumulate across programs. For small E-Rate applicants and small rural providers, this rule change could meaningfully reduce administrative burden, though the FCC also asks how it would uncover unknown risk areas without random audits of these recipients.

Pay-and-dispute.

The FCC currently applies two different standards, depending on the direction of the money. On the contributions side—the payments carriers make into the USF—providers must follow a pay-and-dispute procedure: they pay USAC's invoice in full by the due date (or incur interest, penalties, and potential debt-collection proceedings) even if they have filed a timely appeal, and receive a refund if USAC later determines a billing error was made. But when USAC seeks to recover support already paid out of the Fund—to an E-Rate applicant, for example—the filing of an appeal currently pauses (stays) the recovery. 

The FCC states that this approach "may encourage gamesmanship and delay the return of improperly disbursed funds," and seeks comment on adopting a pay-and-dispute model for all USF programs: beneficiaries and service providers would be required to repay a recovery notwithstanding a pending appeal, so long as there has been a relevant Bureau- or Commission-level decision. For a school district or health care provider facing a large extrapolated recovery, the combination of these two changes—extrapolation plus pay-and-dispute—could mean repaying substantial sums before appeals are exhausted.

Operating Costs: A Budget Cap for USAC?

USAC's total operating expenses in 2025 were $266,603,608—3.06 percent of operating expenses, plus the $8,450,995,594 in total disbursements that year. The FCC seeks comment on whether USAC's budget should be capped, and if so, whether the cap should be a fixed amount (adjusted for inflation) or a proportion of disbursed or projected support. The FCC further asks about limits on specific budget categories (information technology, outreach, contractors, audits), whether administrative functions should be cut or performed by FCC staff, whether a staff reduction would impair USAC's ability to administer the USF, and whether "USAC staff salaries and benefits [should] be reevaluated." The FCC also asks about stakeholders' experiences with USAC's outside contractors, including whether contractors are knowledgeable enough to audit contributors and participants effectively.

On the Board side, the FCC proposes to amend its rules (section 54.703(e)) to remove the requirement that all USAC Board meetings be held in Washington (DC). Currently, the 20-person Board is reimbursed for travel, lodging, and meals when attending USAC's quarterly board meetings. The FCC asks whether removing the in-person requirement would enable meetings to be conducted more cost-effectively.

The Biggest Question: Should USAC Remain the Administrator?

The NPRM seeks comment on "the utility of maintaining a permanent administrator of the USF" at all, including the benefits and drawbacks of moving away from one, whether FCC staff should handle portions of USF administration directly, and which functions might be brought "in-house." The NPRM notes that one commenter (Mattey Consulting) suggested eliminating USAC's role in billing and collection for contributions entirely. If a permanent administrator is retained, the FCC asks whether it should continue to be USAC "or should other candidates be considered," whether a Request for Proposals (RFP) process should be used to select a new administrator or contractors, whether candidates should be limited to not-for-profit corporations, and how a structural change would affect the neutrality of USF administration.

The FCC also proposes a housekeeping change with substantive undertones: updating its rules to remove obsolete language and accurately reflect that USF funds are now held in the U.S. Treasury, that any payment requires approval by an FCC certifying officer, and that USAC "only makes payment recommendations."

Remaking USAC's Board of Directors

USAC's Board has 20 members (including the Chief Executive Officer) serving three-year terms; except for the CEO, each member represents a specific constituency of USF beneficiaries or contributors, nominated by peers and selected by the FCC Chair. The Government Accountability Office's (GAO) 2024 report on USAC noted that because Board members are responsible both to their employers and to USAC, the structure "leads to the appearance of conflicts of interest." 

The NPRM proposes updating the FCC's conflict-of-interest rules for Board members and requiring them to sign USAC's ethics policy annually. The NPRM asks whether FCC rules—not just USAC's ethics policy—should require Board members to represent the overall interests of the Fund rather than their employer or constituency; whether members should be prohibited from inquiring into matters that could benefit their employer or constituency; and whether certain categories of individuals, "such as USF program or contributions consultants," should be excluded from Board service altogether.

On structure, the FCC seeks comment on reducing the Board from 20 to 13 members and on modifying its composition so that half the members represent USF stakeholders (schools, libraries, rural areas, service providers, consumer advocates, state representatives) while the other half are unaffiliated individuals with administrative expertise in areas like corporate management, accounting, grant management, auditing, procurement, and information technology. The NPRM asks whether the current constituency categories should be merged or eliminated entirely, and whether any member of the public should be able to nominate Board candidates. The FCC proposes to maintain staggered three-year terms and asks whether term limits should apply and, separately, under what circumstances a member may be removed before the end of their term.

Finally, the FCC seeks comment on eliminating the Board's three Programmatic Committees—the High Cost and Low Income Committee, the Schools and Libraries Committee, and the Rural Health Care Committee—and replacing them with committees focused only on audits and on USAC governance and risk.  For the communities served by the USF, this matters: the programmatic committees are currently "vested with the powers and authority necessary to maintain the unique missions and functions" of their respective support mechanisms. Funds for Learning argued in response to the Public Notice that the strength of E-Rate depends on Board members who understand the operational realities of applicants, and that any reform "should preserve, and ideally expand, direct representation of the schools and libraries community."

What's Significant, What's Absent, What's Carefully Worded

Proposals vs. questions.

What the FCC formally proposes versus what it merely asks about is worth tracking. The firm proposals are relatively contained: public reporting of turnaround times and deadline monitoring; extending audit authority to non-carrier beneficiaries and codifying extrapolation; updating Treasury-related rule language; removing the DC board meeting requirement; annual ethics-policy signing and staggered terms.

The most consequential items—replacing USAC, capping its budget, adopting pay-and-dispute across all programs, shrinking and restructuring the Board, eliminating programmatic committees—are framed as questions. That framing preserves the FCC's flexibility, but commenters could treat the questions as seriously as the proposals.

The Supreme Court case that goes unmentioned.

The draft NPRM does not cite FCC v. Consumers' Research, the June 2025 decision in which the Supreme Court upheld the constitutionality of the USF's funding mechanism against a nondelegation challenge¹—including the specific claim that the FCC unlawfully subdelegated authority to USAC. The Court reasoned that USAC is broadly subordinate to the FCC, which appoints its board, approves its budget, and retains all decision-making authority, relying on USAC only for non-binding advice.

The Court's holding rested on characterizations the FCC has long applied to USAC—and that the NPRM repeats: USAC's function is "purely administrative," and USAC "only makes payment recommendations." That is precisely what raises the stakes of this proceeding. Whatever restructuring the FCC ultimately adopts, the constitutional foundation the Court affirmed depends on the administrator remaining subordinate and advisory—a constraint worth keeping in mind as stakeholders weigh proposals to reshape USAC's role.

What the record shows—and doesn't.

The NPRM asks extensively about cutting USAC's costs, staff, and salaries, but the only outside review it cites—the GAO's 2024 report, titled Administration of Universal Service Programs is Consistent with Selected FCC Requirements—found USAC compliant with the selected FCC requirements GAO examined, while noting the appearance-of-conflicts issue in Board structure. The draft does not present findings of administrative failure or excessive cost; the efficiency case is framed prospectively, around the FCC's stewardship of "finite USF funds."

What Happens Next

The FCC is scheduled to consider the draft NPRM at its August 2026 open meeting. If adopted, comments will be due 30 days after Federal Register publication and reply comments 60 days after, filed in WC Docket No. 26-173 via the Electronic Comment Filing System (ECFS). For the schools, libraries, health care providers, Lifeline providers, and rural network builders whose day-to-day work runs through USAC, this is the moment to put specific operational experience—good and bad—on the record.

Notes

The argument that Congress unconstitutionally handed its taxing power to the FCC, and the FCC, in turn, handed it to a private company.

The Benton Institute for Broadband & Society is a non-profit organization dedicated to ensuring that all people in the U.S. have access to competitive, High-Performance Broadband regardless of where they live or who they are. We believe communication policy - rooted in the values of access, equity, and diversity - has the power to deliver new opportunities and strengthen communities.

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