E-Rate is a U.S. federal funding program for providing discounts for telecommunications, Internet access and internal networking costs for schools and libraries to ensure access equity across poor and rich, rural, urban and suburban areas, and highly served and underserved areas. This paper examines the impact of the E-Rate program on social equity and educational efficacy in American public schools, based upon the federal government's original purpose for investment. The investigation of these issues was based on a document analysis and interviews. As far as equity is concerned, E-Rate brought about a great improvement in providing access to information technology. However, mere access is not enough for resolving the digital divide in schools. Intrinsic problems of E-Rate, such as complex application process and inflexibility of the usage, result in disproportionate funding nationwide that actually increases the digital divide during the beginning of the program. Continuing disparities between schools regarding the quality as well as the number of connections remain. Thus, the conclusion is that E-Rate has yet to accomplish its goals in terms of closing the digital divide between rich and poor schools, rural and urban schools, and even high schools and elementary schools. As far as the effective incorporation of information technology into better teaching and learning is concerned, the study suggests that E-Rate can not bring efficacy to the education sector except for providing less than seamless Internet connection to schools. Connection is not necessarily related to productive technology education. Therefore, the telecom sector should align its universal service goals with the vision of the education sector and other funding agencies at private, federal, state and local levels to ensure that technology investments in schools have effective utilization. (Contains 1 table and 1 figure.)