If you choose to do virtualization, I would advise you to stick with KVM and virt-manager for easy creation / management of your VMs. KVM is a first class citizen on Ubuntu, performance is great (phoronix benchmarks show KVM performing better than Xen on Ubuntu 12.04), support is great, it just works and is very reliable.
OpenStack is a great piece of software, but adds lots of complexities you may not want to deal with now.
If you follow this route, a few tips that have worked for me:
1. Use the virtio devices for network and disk on your VMs;
2. Plan your networking well, I would say maintain the host as the gateway, DHCP server and firewall for all VMs, use Shorewall to handle the task;
3. Build and configure a base VM with ubuntu server using the virtual kernel (apt-get install linux-virtual) and keep it untouched. Everytime you need to setup a new VM for a student all you have to do is clone this base install, change /etc/hostname and /etc/hosts to give the VM a unique name and off you go.
I suggest you just give KVM and virt-manager a quick try before you embark on a full new installation of VMWare, XenServer or whatever which will take hours of work. You can test KVM+virt-manager in a few minutes changing almost nothing on your current ubuntu set-up, it is the easiest way to try virtualization and if you do not like it you will still have your servers running just like they always did.