Sumo Paint is a free online photo editing web application that contains a number of tools that you would find on Photoshop. You can even use it in fullscreen mode and can import photos from your computer or from a URL. This is an amazing site with lots of options. You can even have Sumo Paint on your own website.
It might be a little complex for most students, but if you wanted to have them edit a photo, add text, or add custom filter, this is a great tool. Now that Picnik is gone, this is a site worth bookmarking.
Have you used Sumo Paint before? What was your experience with it?