Since I'm fairly large and good in a fight, I would advise you to not back down and tell everyone he knows how much money he owes you. Say it in front of the class you two share. "This guy refuses to pay back the $125 dollars he owes me, do you all think that's fair? No, you don't, because he's being an asshole." If he picks a fight with you after that, some classmates might help you. I know I would.
This advice is less pertinent if you're scrawny and he's beefy, however. Even so, I would advise you not to drop it so you can have pride in yourself for being a real man about it and refusing to back down. I doubt legal troubles would occur as long as you do not start the fight and do not beat on him too badly if you happen to win.