Princeton University and a group of Princeton residents have reached a settlement in the case challenging the university’s tax exempt status as a nonprofit. The deal, announced on October 14, averts a trial that was scheduled to begin this week and defuses a dispute that was closely watched by other universities and nonprofit groups around the country.

The settlement provides a tax break for homeowners who qualify for the Homestead tax credit: households making less than $75,000, or people over 65 making less than $150,000. The university will contribute $2 million in 2017 and $1.6 million a year for five years to provide tax relief for these residents. Nearly 1,000 Princeton homeowners qualify for the Homestead credit; tax relief for them will amount to roughly $2,000 for the first year.

The university also agreed to make three annual contributions of $416,700 to the Witherspoon Jackson Development Corporation, a nonprofit aimed at helping existing residents in a historically diverse neighborhood. Lastly, it agreed to make voluntary contributions of $3.4 million a year to the town of Prince­ton through 2022, extending its current payment in lieu of taxes agreement by two years.

“Princeton University cares deeply about preserving the diversity of the Princeton community, and the contributions we have agreed to make will help to achieve that,” said Princeton President Christopher Eisgruber.

By settling the case, Princeton avoids having to defend its status as a tax-exempt nonprofit organization. The plaintiffs, led by attorney Bruce Afran, had argued the university’s agreements to license technology developed by its faculty members meant that it had effectively become a for-profit.

“It really should be looked at as a model for other communities with large non-profits,” Afran told Bloomberg News. “We want to keep that diverse socioeconomic background in the community. We don’t want Princeton to be solely an elite and exclusive town.”

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