chroots are a little bit overkill given the parameters.
Simply setting the user's home dirs to 700 permissions, or more specifically "only the owner can do anything in the directory" will be sufficient. If you're worried about them knowing that eachother exist with
ls /home you can go further and create a /home/students dir which is root owned and perms rwx--x--x and create the users inside of that.
/etc/adduser.conf to set the
DHOME=xxx to set the default home prefix.
Agreed with the person earlier who said that you should enforce SSH keys only for access to this machine. Rather than giving them a one time password, you should ask them to generate an ssh public key and give it to you via email.
ssh-keygen -t rsa -b 2048
Should be sufficient and will work on Linux and Mac. If they are on windows, PuTTY has a good tutorial for setting up ssh keys. After that command, they should send you