WASHINGTON -- Sallie Mae and its former loan servicing unit agreed to pay a combined $139 million to resolve federal allegations that the companies cheated soldiers and charged other borrowers unfair fees on student loans.

The Department of Justice and the Federal Deposit Insurance Corp. accused Sallie Mae and its loan unit, now called Navient, of intentionally violating the Servicemembers Civil Relief Act by overcharging active-duty troops beginning in 2005, a period in which service members were fighting wars in Iraq and Afghanistan. The FDIC said Sallie Mae and Navient processed borrowers monthly student loan payments in a way designed to maximize late fees.

Despite the settlement and the evidence amassed by federal investigators, the Education Department hasn't determined whether it will take any action on Navient's loan servicing contract with the federal government. Education Secretary Arne Duncan said he instructed department officials to immediately conduct a review to determine "what appropriate actions, if any," should be taken against the company.

The service members law requires loan companies to cap interest rates at 6 percent upon request for borrowers entering active duty. The Justice Department said an audit revealed that just 7 percent of troops on active duty who had student loans with interest rates above 6 percent, and whose loans had a special military identification code in the companies computer systems, had their rates capped under the law.

The other 93 percent, according to federal prosecutors, paid much more than they should have. Some had federal student loans the Education Department was paying Sallie Mae to service. Nearly half of them paid an additional $166. Close to a quarter paid an extra $500. The Justice Department said a majority of troops gave Sallie Mae and Navient paperwork that made clear they were eligible for the service member laws protections.

Federal authorities said Sallie Mae and Navient broke the law in three ways: The companies failed to honor troops requests after receiving them, did not follow up with troops whose documents may have been deficient, and failed to inform troops of the 6 percent cap when they requested other benefits under the law.

Defendants' conduct was intentional, willful, and taken in disregard for the rights of servicemembers, the Justice Department said.

The companies agreed to create a $60 million fund that will issue refunds to 60,000 aggrieved service members, and to pay a $55,000 civil penalty. The companies also agreed to refund borrowers who were unfairly charged late fees $72 million, and pay the FDIC a $6.6 million civil penalty. Sallie Mae and Navient neither admitted nor denied wrongdoing.

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, said John Remondi, Navient chief executive. Sallie Mae said, We regret any inconvenience or hardship that our customers may have experienced.

Navient placed some of the blame for its actions on the federal government. According to the company, federal authorities have effectively changed how they enforce the service member law and are now punishing Navient for failing to comply with what Navient describes as new standards.

Industry executives have previously pointed to correspondence between them and the Education Department, which lends some credence to the industrys position when it comes to federal student loans.

For example, the Education Department previously told Washington trade groups representing student loan companies that service members had to specifically request that their loans be capped at 6 percent. The companies couldnt simply reduce service members interest rates if they didnt specifically request it.

Reducing interest rates would impact the Education Departments bottom line. The department is forecast to generate $127 billion in profit over the next decade from lending to college students and their families, according to the Congressional Budget Office.

Education Department officials did not respond to multiple requests for comment.

The settlement, which still must be approved by a federal judge, is the first case to be brought under the service member law alleging violations on student loans, according to the Justice Department.

While the settlement resolves inquiries from the Justice Department and FDIC, pending probes of Sallie Mae and Navient by the Consumer Financial Protection Bureau were not included. The cost to settle the consumer bureaus investigations are certain to drive up the companies combined tally to achieve peace with regulators in Washington, who have grown increasingly skeptical of the companies' operations.

Sallie Mae gave servicemembers the runaround and denied them the interest-rate reduction required by law. This behavior is unacceptable, said Holly Petraeus, who oversees the CFPBs efforts to protect service members. And it's particularly troubling from a company that benefits so generously from federal contracts.

The service member settlement also opens a new front for Navient, which must now convince the Education Department not to cancel its lucrative government contract.

The Justice Department said the violations occurred on federal student loans -- specifically on those loans the Department of Education pays the companies to service. Sallie Mae, which recently split itself into two, with Navient now handling the Education Department contract, has collected $256 million in fees off the Education Department contract over the the past three years.

According to first quarter figures, Navient this year is set to reap more than $120 million in revenue off the contract. The company handled 5.8 million accounts for the Education Department as of March 31.

The contract forbids Navient, and its predecessor, Sallie Mae, from breaking the law, and Education Department officials have said a breach of the contract may be grounds for termination. The Huffington Post previously reported that despite federal investigators having evidence as late as August that Sallie Mae violated the service member law on federal student loans, the Education Department told the company in late October that it intended to renew its five-year contract.

There is no place in the federal student loan program for companies that would deceive or deprive borrowers of guaranteed protections or benefits, said Rep. George Miller (D-Calif.), the top Democrat on the House Education Committee.

Duncan, when asked during a news conference Tuesday whether the department would cancel the companys contract, said, There's no presumption of guilt or innocence. We'll do a thorough review and we'll go over the facts that follow, but every option is on the table."

The federal governments investigation into Sallie Mae took well over a year. Attorney General Eric Holder said that the companies engaged in a nationwide practice of failing to provide service members with the 6 percent interest rate to which they were entitled under law.

In August, Chris Greene, Education Department spokesman, said that Sallie Mae told the department that federal student loan borrowers were not affected by what was then publicly viewed as a probe targeting the companys handling only of private student loans.

The Education Department has done nothing to regulate the company when evidence that Sallie Mae mishandled its loans continues to mount, said Chris Hicks, an organizer who leads the Debt-Free Future campaign for Jobs With Justice, a Washington-based nonprofit that is among organizations that have called on Duncan to suspend the departments contract with Sallie Mae.

They have turned a blind eye to their servicers practices at the expense of borrowers, and this is already beginning to have a ripple effect on our entire economy, Hicks said. Inaction simply isnt an option.

Sen. Tom Harkin (D-Iowa), who chairs the Senate education committee, said student loan practices uncovered by federal investigators strengthened his resolve to put in place strong servicing rules. While some of these bad actors might think that they are too big to fail, I am committed to ensuring that student loan borrowers are no longer too small to ignore, he said.