World Bulletin / News Desk
The move, which comes days before one of the cases was to be heard in California, marks an about-face by the president-elect who once said he would not settle with the plaintiffs "out of principle".
By choosing the path of settlement, Trump avoids being put on trial while in the middle of a presidential transition.
Trump University ran from 2005 to 2010 and offered real estate training, only to close up shop in the face of intense litigation involving two class-action lawsuits and another by New York Attorney General, Eric Schneiderman.
"I am pleased that under the terms of this settlement, every victim will receive restitution and that Donald Trump will pay up to $1 million in penalties to the State of New York for violating state education laws," Schneiderman said in a statement.
"The victims of Trump University have waited years for today’s result, and I am pleased that their patience — and persistence — will be rewarded by this $25 million settlement," he added.
Trump said during a debate in February that the case was "something I could have settled many times.
"I could settle it right now for very little money, but I don't want to do it out of principle," he said at the time.
But the lawsuits and ensuing testimonies from former Trump University employees showed that the educational company did not live up to Trump's staunch endorsement.
An executive testified that the university was "a total lie", while another said it was "a fraudulent scheme".
Legal action against Trump University gained renewed prominence in May when a judge hearing the class-action lawsuits had his impartiality questioned by Trump on the basis of his Mexican heritage.