Trevor Jones, 51, reached the agreement with West Oxfordshire College in Witney near Oxford where he had been principal since August 1997.
Mr Jones, a one-time Territorial Army officer whose hobbies included motorcycle racing and parachute jumping, was making his 100th jump when the accident happened in September last year.
The lines on his parachute became twisted during the 13,000-foot descent and he suffered multiple injuries. His arms and legs were badly broken, the bones in his face were shattered and he was left partially-sighted.
He said that after three months in hospital, he intended to go back to work but was unable to because he was sacked this February.
He brought a case against the college for breach of contract and disability discrimination. The settlement was reached during an employment tribunal in Reading last month.
Mr Jones was unable to comment on the terms of the settlement. He told The TES:
"There's a lot I would love to say but I feel it might involve stepping outside the agreement."
He said that he was in the process of turning the college around following poor inspection results when the accident happened.
West Oxfordshire College said it was prevented from commenting on the case by the out-of-court settlement.