The lawsuit was part of the "California Values Act," which prohibits police from complying with requests from U.S. Customs officials to hold people in custody for ICE agents.
The money will be donated to the Council of Mexican Federations.
In turn, the council will provide scholarships to students in Huntington Park.
"We know that education is expensive, and with this money we can help them a little bit," said Francisco Moreno, the executive director of the Council of Mexican Federations.
The settlement follows the detention of a man who was held for 46 days at an ICE facility in Los Angeles.