‘‘(C) For a loan for which the first dis-
bursement is made on or after July 1, 2008, 
and before July 1, 2009, 5.44 percent on the 
unpaid principal balance of the loan. 
‘‘(D) For a loan for which the first dis-
bursement is made on or after July 1, 2009, 
and before July 1, 2010, 4.76 percent on the 
unpaid principal balance of the loan. 
‘‘(E) For a loan for which the first dis-
bursement is made on or after July 1, 2010, 
and before July 1, 2011, 4.08 percent on the 
unpaid principal balance of the loan. 
‘‘(F) For a loan for which the first dis-
bursement is made on or after July 1, 2011, 
and before January 1, 2012, 3.40 percent on 
the unpaid principal balance of the loan.’’. 
(2) SPECIAL ALLOWANCE CROSS REFERENCE.—
Section 438(b)(2)(I)(ii)(II) of such Act is amended 
by striking ‘‘section 427A(l)(1)’’ and inserting ‘‘sec-
tion 427A(l)(1) or (l)(4)’’. 
(b) DIRECT
LOAN
INTEREST
RATES.—Section 
455(b)(7) of the Higher Education Act of 1965 (20 
U.S.C. 1087e(b)(7)) is amended by adding at the end the 
following new subparagraph:
‘‘(D) 
REDUCED
RATES
FOR
UNDER-
GRADUATE
FDSL.—Notwithstanding the pre-
ceding paragraphs of this subsection, for Fed-
eral Direct Stafford Loans made to under-
graduate students for which the first disburse-
ment is made on or after July 1, 2006, and be-
fore January 1, 2012, the applicable rate of in-
terest shall be as follows: 
‘‘(i) For a loan for which the first dis-
bursement is made on or after July 1, 
2006, and before July 1, 2007, 6.80 per-
cent on the unpaid principal balance of the 
loan. 
‘‘(ii) For a loan for which the first 
disbursement is made on or after July 1, 
2007, and before July 1, 2008, 6.12 per-
cent on the unpaid principal balance of the 
loan. 
‘‘(iii) For a loan for which the first 
disbursement is made on or after July 1, 
2008, and before July 1, 2009, 5.44 per-
cent on the unpaid principal balance of the 
loan. 
‘‘(iv) For a loan for which the first 
disbursement is made on or after July 1,
2009, and before July 1, 2010, 4.76 per-
cent on the unpaid principal balance of the 
loan. 
‘‘(v) For a loan for which the first 
disbursement is made on or after July 1, 
2010, and before July 1, 2011, 4.08 per-
cent on the unpaid principal balance of the 
loan. 
‘‘(vi) For a loan for which the first 
disbursement is made on or after July 1, 
2011, and before January 1, 2012, 3.40 
percent on the unpaid principal balance of 
the loan.’’. 
SEC. 3. REDUCTION OF LENDER INSURANCE PERCENTAGE. 
(a) AMENDMENT.—Subparagraph (G) of section 
428(b)(1) of the Higher Education Act of 1965 (20 
U.S.C. 1078(b)(1)(G)) is amended to read as follows: 
‘‘(G) insures 95 percent of the unpaid 
principal of loans insured under the program, 
except that—
‘‘(i) such program shall insure 100 
percent of the unpaid principal of loans 
made with funds advanced pursuant to sec-
tion 428(j) or 439(q); and
‘‘(ii) notwithstanding the preceding 
provisions of this subparagraph, such pro-
gram shall insure 100 percent of the un-
paid principal amount of exempt claims as 
defined in subsection (c)(1)(G);’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect with respect to loans made 
on or after July 1, 2007. 
SEC. 4. GUARANTEE AGENCY COLLECTION RETENTION. 
Clause (ii) of section 428(c)(6)(A) of the Higher 
Education Act of 1965 (20 U.S.C. 1078(c)(6)(A)(ii)) is 
amended to read as follows: 
‘‘(ii) an amount equal to 24 percent of 
such payments for use in accordance with 
section 422B, except that—
‘‘(I) beginning October 1, 2003 
and ending September 30, 2007, this 
subparagraph shall be applied by sub-
stituting ‘23 percent’ for ‘24 percent’; 
‘‘(II) beginning October 1, 2007 
and ending September 30, 2008, this 
subparagraph shall be applied by sub-
stituting ‘20 percent’ for ‘24 percent’; 
‘‘(III) beginning October 1, 2008 
and ending September 30, 2010, this
subparagraph shall be applied by sub-
stituting ‘18 percent’ for ‘24 percent’; 
and 
‘‘(IV) beginning October 1, 2010, 
this subparagraph shall be applied by 
substituting for ‘24 percent’ a per-
centage determined in accordance 
with the regulations of the Secretary 
and equal to the average rate paid to 
collection agencies that have contracts 
with the Secretary.’’. 
SEC. 5. ELIMINATION OF EXCEPTIONAL PERFORMER STA-
TUS FOR LENDERS. 
(a) ELIMINATION OF STATUS.—Part B of title IV of 
the Higher Education Act of 1965 (20 U.S.C. 1071 et 
seq.) is amended by striking section 428I (20 U.S.C. 
1078–9). 
(b) CONFORMING AMENDMENTS.—Part B of title IV 
of such Act is further amended—
(1) 
in 
section 
428(c)(1) 
(20 
U.S.C. 
1078(c)(1))—
(A) by striking subparagraph (D); and 
(B) by redesignating subparagraphs (E) 
through (H) as subparagraphs (D) through 
(G), respectively; and