The legal action, the first of its kind filed against student loan owners and processors for alleged violations of the Servicemembers Civil Relief Act, involves about 60,000 servicemembers who were charged rates in excess of the maximum 6%.
Attorney General Eric Holder and Education Secretary Arne Duncan said the settlement involving Sallie Mae, now known as Navient, awaits approval by a federal judge in Delaware.
Holder said the lenders engaged in "a nationwide practice'' for nearly a decade that failed to provide military members the 6% rate.
"This alleged overcharging appears to have been the rule, rather than the exception,'' Holder said. "According to an audit, excessive rates were charged to 93% of active-duty servicemembers who had loans owned or serviced by Sallie Mae.''
If approved, proceeds of the settlement would be distributed among the 60,000 members.
The government alleged that the lenders improperly obtained default judgments against servicemembers who were protected under the Civil Relief Act.
As a result, the terms of the proposed deal require lenders to request that credit agencies delete any negative entries based on the interest overcharges and default judgments.
"This type of conduct is more than just inappropriate,'' Holder said. "It is inexcusable. And it will not be tolerated.''
Holder said lenders cooperated with the inquiry and endorsed the settlement proposal.
"We offer our sincere apologies to the servicemen and servicewomen who were affected by our processing errors and thus did not receive the full benefits they deserve,'' Navient President John Remondi said. "Over the past several years, we have implemented changes in our procedures and training programs to prevent these mistakes from happening again.''"We regret any inconvenience or hardship that our customers may have experienced,'' Sallie Mae Bank said in a statement. "Initiatives are underway to prevent such errors from recurring and apply the clear regulatory guidance these orders now provide.''