The Senate Commerce Committee will hold a hearing on Wednesday to examine the program, and the FCC is scheduled to vote on whether to move ahead with Obama's plan on Friday.
But according to Pai, the program as currently structured "almost invites" abuse.
He pointed to corruption in Houston, unused equipment in Puerto Rico and wasteful spending in Atlanta and Chicago.
E-Rate, which costs about $2 billion per year, is funded through fees on consumers' monthly phone bills.
Pai called on the FCC to reduce the paperwork to apply for E-Rate and require more disclosure about how the funds are being used. People should be able to check a single website to see how any school in the country is using the federal funds, Pai said.
He argued that schools should contribute at least one dollar for every three E-Rate dollars they receive, reducing the incentive to waste money. He also said the agency should prioritize next-generation services such as broadband, instead of telephone service. A classroom Internet connection should also receive priority over a garage or athletic facility, Pai said.
The Republican commissioner said he doesn't object to the goal of the president's initiative to expand E-Rate, but he criticized it for forcing schools to meet an "arbitrary national target" for Internet speed.