calculating-discount-rate

New discount method could help—or hurt—eRate applicants


School districts must use a single discount percentage for all of their schools, leading to more—or less—funding for some

calculating-discount-rate
The changes have important implications for schools.

[Editor’s note: This is the fifth in a series of articles examining the new eRate rules and how they will affect schools.]

The FCC’s new eRate rules include important changes in how school districts must calculate their discount percentage. Some districts stand to benefit from these changes, while others could see their eRate funding reduced.

In this report, you’ll learn what these changes are—and how they’ll affect your schools.

The eRate provides discounts ranging from 20 percent to 90 percent of the cost of telecommunications services, internet access, and internal connectivity to eligible schools and libraries. Now indexed to inflation, the program will supply more than $2.4 billion in funding this year.

To transform the program into a vehicle that supports broadband in schools, the FCC this summer issued several new eRate rules. One change that hasn’t gotten a lot of attention so far is the FCC’s move toward a district-wide method of calculating your discount rate.

The sliding-scale discount rate depends on two factors: (1) whether your district is considered urban or rural, and (2) the percentage of your students who are eligible for free or reduced-price lunches, with schools and districts serving a higher percentage of students from low-income families getting a larger discount.

Traditionally, school districts would calculate the discount rate for each of their schools individually and would use each school’s discount rate to determine the amount of eRate funding that school would get for site-based services, such as internal connections. For shared or district-wide services, such as monthly internet access, school systems would calculate a district-wide rate that was weighted per student, per site.

For instance, let’s say your urban school system has three schools and 1,000 total students. School 1 has 200 students, 150 of whom (75%) qualify for free or reduced lunch. School 2 has 300 students, 150 of whom (50%) qualify for free or reduced lunch. School 3 has 500 students, 100 of whom (20%) qualify for free or reduced lunch.

According to eRate discount matrix, the discount rates for Schools 1, 2, and 3 would be 90%, 80%, and 50%, respectively. The district-wide rate for your school system would be 67%, calculated as a weighted average of the discount rates for the three schools {[(90% x 200, or 180) + (80% x 300, or 240) + (50% x 500, or 250)] / 1,000 = .67}.

Not surprisingly, the FCC said many applicants found this building-by-building approach to calculating eRate discounts to be “confusing, time consuming, and fraught with the potential for errors.” It also took longer for the Universal Service Administrative Co. (USAC), the agency that administers the eRate, to review applications.

So, beginning next year, the FCC wants school districts to use a single, district-wide discount rate that would apply to all of their schools. School districts would calculate this percentage in a much simpler way, without figuring a weighted average per school: Take the total number of students across the district who qualify for free or reduced lunch, and divide by the total number of students overall—then consult the discount matrix.

This change has important implications for schools.

(Next page: What these implications are—and another important change you’ll need to know about as well)

“Some applicants will see their discount rate increase under the new rules, and some will see a decrease,” said John Harrington, chief executive officer of Funds For Learning, an eRate consulting firm.

Using this new method, the hypothetical district mentioned before would have 40% of its students qualifying for free or reduced lunch (400 divided by 1,000)—which results in a discount rate of 60%, or seven percentage points lower than before.

What’s more, this rate would apply to all of its schools, even for purchases of equipment specific to one site—so the district would only get a 60% discount on equipment bought and installed at School 2 instead of an 80% discount.

School districts will have to estimate the number of students they anticipate at each school when they calculate their annual discount rate, well before the start of the new school year. The FCC acknowledges that will be hard for many districts, especially those with new schools opening—and the agency is asking district leaders to make their best guess.

But if enrollment ends up being less than expected at any school, you’ll have to give back any funding in excess of what you were entitled to by the end of the next funding year, which could be a logistical nightmare for districts.

This rule only applies to the school year in which funding was received. For example, say your district qualifies for an 80% discount, and you estimate there will be 1,000 students enrolled in a certain school. You apply for the full amount of funding allowed for internal connections at this school in a five-year period, which is $150 per student on the pre-discount cost of equipment, or $150,000—meaning you would get 80% off this equipment cost, or $120,000 in funding.

Now, say this school only ends up with 750 students during the funding year in question. That means you were only entitled to $90,000 in funding—so you’d have to return the other $30,000. But if the school had 1,000 students during the funding year in question, and subsequently lost students over the course of the five-year period, you wouldn’t owe USAC any money.

Students who attend more than one school can be counted by both schools in their enrollment figures, to make sure those facilities have adequate internet connections, the FCC said. Consortia will continue to average their members’ discount rates to calculate their own percentage, but they must do so using the new district-wide rates of their members.

The FCC has updated the definition of “rural,” using federal Census data rather than the National Center for Education Statistics (NCES) designation. Any school system with a majority of its schools designated as rural qualifies for the larger rural discount rate.

There is one final change that also could have a significant impact. Starting next year, if you use the survey approach to calculating how many of your students qualify for free or reduced lunch, you can only base this figure on the actual responses you collect—you can’t extrapolate from these results.

Before, if a school with 1,000 students got 500 surveys back, and 250 of these (50%) indicated the student qualified for the federal school lunch program, school leaders could say that 50% of their total student population qualified. Now, they would only be able to count those 250 students as eligible, or 25% of their student population. For an urban school, that would bring the discount rate from 80% down to 50%—a huge difference in funding.

The state of Alaska had suggested that the FCC allow for extrapolation if a school or district receives at least a 75%-return on its surveys, but the agency rejected this proposal.

See also:

A $5 billion bounty: How to use eRate support for Wi-Fi

New eRate rules invite a new approach: Managed Wi-Fi

eRate changes prompt new voice options for schools

School eMail, websites hit by eRate changes

The final part of this series will examine other eRate rule changes intended to streamline the program and control costs. Watch www.eschoolnews.com for more information.

Dennis Pierce

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