One of the ones who votes to knock his butt out is a Finn, in no way American. But me, the American in the family, thinks the main problem is between the OP and his friend. How she is being so easily manipulated, how a supposed friend's feelings don't matter, her unwillingness to work it out, what does that mean for the friendship if there ever was one...
And that leads into the second part of the problem, which is the ****** trying to make up for his other shortcomings. I think to confront him in a cool, calm, collected and authoritarian manner and to make him look you in the eye will make him back down quickly. Gossipers are usually such cowards. If he'd wanted a fight he would have sought one out already. No, this is about jealousy and the bonus attention he gets telling the stores.
I actually agree with PNE, saying to ignore the problem and just get those good grades is really no advice at all. That attitude of ignoring the problem of bullying is actually how bullying thrives. No, call it what it is, and face it publically. It doesn't have to come to a fight. There's such a thing as inner strength and that's what needs to be shown here.
The peer group, the circle of friends though, they're just crap. Who plays that game anymore in college, honestly? Being alone is better than hanging out with these drama hounds. The only reason I think the bully needs to be confronted is for self-worth. It bothers the OP, it's fine to say it shouldn't, but it does. Ok fine, don't let him get away with it. Make him look you in the eye and tell you why. He won't like that. Do what you need to to avoid a fight, but not from fear - if you understand what I mean.