Thirty-nine state attorneys general, including Josh Shapiro in Pennsylvania and Andrew J. Bruck in New Jersey, reached a $1.85 billion settlement with student-loan processor Navient over allegations that it steered borrowers to loans they couldn’t pay off and failed to offer counsel on more affordable repayment plans, officials said Thursday.

Under the terms of the settlement released Thursday, Wilmington-based Navient will cancel the remaining balance on nearly $1.7 billion in subprime private student loan balances owed by more than 65,000 borrowers nationwide. That was debt that likely has been harming borrowers’ credit scores for years. And collectively the cancellation represents the biggest benefit for consumers in the agreement.

And $95 million more will be paid in restitution to roughly 350,000 federal student borrowers whose loans were placed for two consecutive years in forbearance, leading to higher loan balances. This amounts to about $260 per borrower, the attorneys general said.

According to Shapiro, Navient allegedly originated predatory subprime private loans to students attending for-profit schools and colleges even though its executives knew that many borrowers would be unable to repay the loans. Shapiro called the practice similar to how lenders in the subprime mortgage crisis offered homebuyers loans that they couldn’t repay, leading to foreclosures and the 2008 financial collapse.

Navient said in a statement that the allegations were baseless, that it did not admit wrongdoing, and that it settled to save litigation costs. “The agreements include an express denial of the claims and any borrower harm by the company,” Navient said.

“These lawsuits began more than eight years ago, yet we are still years away from our day in court,” Navient officials added. “We made this decision to avoid the burden, expense, time and distraction it would take to resolve these claims through state-by-state litigation and investigations.”

Last year, Navient relinquished its student-loan processing contract with the U.S. Department of Education. More than five million borrowers’ accounts will soon be transferred to Maximus, a competing government-loan servicing company.

Federal student loan borrowers are expected to resume payments in May 2022 after a hiatus because of the pandemic.

Neither Navient nor state attorneys general can cancel federal student loans. But under the deal announced Thursday, Navient will cancel certain qualifying private loan balances for borrowers who have been in default.

Virtually all of these private loans were originated between 2002 and 2010 by Sallie Mae, which spun off its student loan services in creating Navient in 2014, the company said. Loan borrowers do not need to take any action to qualify for relief. Navient or the settlement administrator will send a letter by July 2022 to each eligible private loan borrower, according to a news release describing the settlement and attorneys general who participated in a national news conference on Zoom.

The 45-page settlement with multiple provisions is the latest action chipping away at the nation’s nearly $1.8 trillion student loan debt, which experts say has forced younger adults to delay buying homes or even marry. In many cases, that debt has complicated retirement plans for older Americans, who are returning to school or enlisted as loan co-signers. The Trump and Biden administrations have delayed loan payments on federal student loans because of the pandemic but borrowers have clamored for a more permanent solution.

“We’re seeing steps in the right direction,” Fred Amrein, the chief executive officer for PayFORED, a student loan solutions provider in Newtown Square. But he said that the Navient settlement “doesn’t even reach 1%” of the $1.8 trillion student loan debt.

In a statement, Shapiro said that “Navient repeatedly and deliberately put profits ahead of its borrowers – it engaged in deceptive and abusive practices, targeted students who it knew would struggle to pay loans back, and placed an unfair burden on people trying to improve their lives through education.”

He added that the investigation into Navient uncovered “Navient’s drive to mislead borrowers into forbearances, which stopped them from paying down the principal on their loan and led many to accumulate more debt and never-ending interest payments.” These are students who took out federal student loans.

In Pennsylvania, the deal’s big debt cancellation looks like this: 2,467 Pennsylvanians will receive $67 million in private debt cancellation — or an average of $27,158 per borrower, according to the Attorney General’s office.

In addition, 13,000 Pennsylvania student loan borrowers will receive $3.5 million in forbearance restitution payments -- about $260 on average.

New Jersey’s acting Attorney General Bruck said that New Jersey student loan borrowers will receive more than $60 million in debt cancellation from a settlement with Navient that resolves a 2020 lawsuit filed by the state. The lawsuit alleged that Navient engaged in deceptive conduct and misrepresentations when servicing thousands of New Jersey consumers’ student loans over the last decade — boosting company profits at the expense of struggling borrowers.

The New Jersey portion comprises about $57.2 million in debt cancellation and $3.1 million in restitution payments to borrowers, as well as a $3 million payment to the state.

A separate lawsuit against Navient by the Consumer Financial Protection Bureau, a federal agency, is ongoing, and claims are similar to the state attorneys general lawsuits.

“We are confident that we will prevail at trial against the CFPB. After years of investigation, discovery and litigation, the CFPB has failed to produce a single borrower to substantiate its claims because they don’t exist,” Navient said in its statement. More information on the CFPB suit is available at navient.com/legalfacts.

Besides Navient, FedLoan, part of the Pennsylvania Higher Education Assistance Agency (PHEAA) in Harrisburg, will also relinquish its federal student loan servicing business. That occurred after U.S. Sen. Elizabeth Warren (D., Mass.) lambasted PHEAA CEO James Steeley for allegedly misleading her committee in an April hearing. In July, FedLoan said it wouldn’t renew its federal loan servicing contract when it expired in December.

Student advocates laud the settlement

Mike Pierce, executive director of the Student Borrower Protection Center, praised the deal:

“At long last, the student loan borrowers who had been forced to shoulder the burden of dangerous and predatory private student loans made by Sallie Mae and owned by Navient will finally be debt free. Today’s action is a clear victory for many of the millions of borrowers whose pain Navient and Sallie Mae shamelessly turned into profit.

“Borrowers may not be able to enjoy Navient CEO Jack Remondi’s $8 million salary, his three homes, or his use of the company’s private jet. But they can rest a little bit easier knowing that a measure of justice has been served,” he said.

Alexis Miller, 37, graduated in 2007 from Drexel with a nursing degree and roughly $61,000 in school loans.

“I funded my whole degree with loans, and many, many nurses do the same,” said Miller at a news conference with Shapiro and John Fry, president of Drexel University, on Thursday afternoon.

She said Navient steered her away from income-driven repayment plans and instead into forbearance, where her payments were paused and her debt rose to more than $80,000. “I knew in my gut it wasn’t right. Then they started hounding me, calling my bosses at work. It was embarrassing.”

Under the settlement with Navient, her debt will be canceled as of June. To find out whether you are eligible for the settlement deal, see the terms outlined on navientagsettlement.com.

Borrowers with Navient debt shouldn’t stop making payments until it is determined that their debt qualifies under the settlement, experts caution.

Any payments made between June 30, 2021, and cancellation will be refunded,” said Anna Helhoski, student loan expert at NerdWallet. Federal student loan borrowers eligible to receive restitution should update their contact information at studentaid.gov to make sure they receive more information this spring.