The rapid adoption of technologies that fall under the category of Artificial Intelligence (AI) into education has significantly changed digital learning environments in terms of personalization of educational experience, development of intelligent tutoring systems, use of predictive analytics, and automation of academic help. However, increased adoption of AI-enabled educational tools has created numerous problems regarding information ethics, data privacy concerns, and mental well-being of students. This empirical research aims at investigating the influence of ethical implementation of AI and the awareness of data privacy issues on the psychological digital well-being of both students and professors at higher educational institutions. The research was conducted according to the principles of quantitative research and employed structured questionnaires completed by 350 participants, who were university students and professors. The research utilized such methods of statistical analysis as correlation analysis, regression analysis, ANOVA, and Structural Equation Modelling (SEM). Consequently, it was established that ethical use of AI technology, characterized by transparency, fairness, accountability, and adequate handling of data, enhances the trust of users and contributes to their digital well-being. However, such factors as data misuse, surveillance, and information sharing negatively affect the respondents' psychological comfort and digital well-being.  Another contribution of the current study is the understanding of digital trust as the mediating factor in ethical AI practices and mental well-being. The present research will help enrich the existing literature on responsible practices of artificial intelligence implementation in education and provide insights for ethical AI approaches to be used when creating psychologically safe digital educational environments...