The US president-elect was being sued by former
students who paid $35,000 (£28,000) for real estate "secrets" from
his "hand-picked" instructors.
Mr Trump had repeatedly said he would not settle the
class-action lawsuits.
Attorney General Eric Schneiderman said the
settlement was a "stunning reversal" by Mr Trump and a "major
victory" for victims.
But Mr Trump's lawyer Daniel Petrocelli said his
client was pleased with the outcome, saying "he was willing to sacrifice
his personal interests, put this behind him, and move forward".
The businessman faced three fraud lawsuits - which
alleged the school misled students and failed to deliver on its promises - in
California and New York.
A trial in one of the cases had been due to begin in
San Diego on 28 November, although Mr Trump's lawyers had attempted to delay
the case.
Attorney General Eric Schneiderman said in a
statement: "Today's $25 million settlement agreement is a stunning
reversal by Donald Trump and a major victory for the over 6,000 victims of his
fraudulent university.
"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."
Mr Schneiderman, who Mr Trump has attacked as a
"lightweight", had sought a $40m payout from Mr Trump over the
university, which closed in 2010.
He called Trump University a "fraud from
beginning to end" in July, adding that the organisation used "false
promises to prey on desperate people".
US District Judge Gonzalo Curiel, who is presiding
over the two California cases, had been urging both sides to settle out of
court.
The settlement may be costly but it will save the
President-elect from a potentially embarrassing trial.
Donald Trump had vowed to keep fighting this case
and his attorneys said they had no doubt he would have won in court, but they
added that a resolution allows Mr Trump to devote his full attention to the
important issues facing the nation.
Settling though could backfire on Mr Trump as he is
facing dozens of lawsuits.
Plaintiffs may smell blood and think he is eager to
settle to avoid court cases while president.
In June, Mr Trump said: "I will win the Trump
University case. I already am, as far as I'm concerned.
"I could settle that case. I could have settled
that case. I just choose not to."
Trump University promised students the opportunity
to learn from "hand-picked" teachers, that actually were not chosen
by Mr Trump himself.
Mr Schneiderman alleged that the closest students
ever got to the real estate mogul was having their photo taken beside a
cardboard cutout of him. He also said that Mr Trump personally pocketed about
$5m (£4m) in the "scheme".
Meanwhile, Donald Trump has named more conservative
hardliners for key posts, with Alabama Senator Jeff Sessions nominated as
attorney general, the country's top law enforcement office.
Mr Sessions was rejected from becoming a federal judge in 1986 because of alleged racist remarks.
In a statement, Mr Trump called Mr Sessions a
"world class legal mind".
Source: www.bbcnews.com
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