Navient (NAVI  ), one of the "big four" U.S. student loan servicers, has agreed to cancel $1.7 billion in student debt as part of a settlement agreement with 39 state attorneys general. The state officials brought a suit against Navient detailing "allegations of widespread unfair and deceptive student loan servicing practices and abuses in originating predatory student loans." 66,000 borrowers are expected to see their loans canceled as a part of the settlement.

According to the states' allegations, Navient steered borrowers towards expensive forbearance periods rather than encouraging them to use a more flexible, income-driven plan. Persis Yu, managing counsel at the Student Borrower Protection Center, says that income-driven plans take more work on the part of the loan servicer.

"There is paperwork that must go back and forth," Yu said. "It's just more work for the servicer. It's very easy for the servicer to put a borrower into a forbearance, and there is evidence that the call center workers were incentivized to get through these calls as quickly as they possibly could. And that meant getting people into quick, easy options - not necessarily the best option for the borrower."

In 2019, the U.S. Department of Education's Office of Inspector General confirmed these allegations via an audit of the options recommended by Navient phone counselors.

The complete settlement amount is roughly $1.85 billion and includes $95 million in funds meant to be repaid to other affected borrowers, equating to about $260 per person for 350,000 borrowers.

State officials allege that Navient and other loan servicers, notably Sallie Mae (SLM  ), may have been working in cooperation with struggling for-profit colleges in order to target vulnerable borrowers with risky private loans. Servicers targeted financially unstable individuals in exchange for agreements that a school would rely on the loan provider for all of their loan servicing needs. According to the states, these colleges often had very low graduation rates.

Another reason for these schools to want to work with private loan providers like Navient is because, in order to qualify for federal government student loans, schools have to show that a certain amount of their revenue is coming from other sources, including private loans. State officials also allege that schools entered agreements with providers promising they would pay back student borrowers' debt if the student defaulted.

According to Eileen Connor, director of the Project on Predatory Student Lending, these risky loans were worth it to lenders like Navient and Sallie Mae because of the agreements made with the universities.

"That meant that they would have this really large volume of guaranteed loans also. But this time the guarantee was coming from the government, so it's like they were covered. Either way, the people who were really screwed were the students," Connor said.

Despite the massive settlement, Navient has been quick to reiterate that the agreement does not constitute an admission of guilt.

"The company's decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court," Navient's Chief Legal Officer Mark Heleen is quoted in a statement. "Navient is and has been continually focused on helping student loan borrowers understand and select the right payment options to fit their needs. In fact, we've driven up income-driven repayment plan enrollment and driven down default rates, and every year, hundreds of thousands of borrowers we support successfully pay off their student loans."