The Camden Board of Education has agreed to pay $500,000 to seven students who were made to eat their lunch on the floor as punishment.
The incident in February 2008 sparked racial tensions in the city because of the way a class of 15 Puerto Rican fifth-graders was punished for spilling a jug of water.
State education officials ruled that the punishment was improper, but was not racially motivated.
Under the settlement, which was first reported by the Courier-Post, the seven students will each get more than $31,000. Their lawyer will get $220,000.
The school board did not admit wrongdoing in the settlement, which was approved by the school board.
A teacher who reported the incident was previously awarded a $75,000 settlement.