I think the teacher is a music teacher and the kids had were a band.
The kids convince some Russians that they have access to the latest technology developed by the government, but they actually were giving them plans for toys (usually they would rip the plan in half and give that half for free, but ask for money for the second half). At some point the government also gets involved and requests that they continue selling the fake secrets to the Russians.
Zits aka Spy Trap (1988) – http://www.imdb.com/title/tt0096509/
“A group of middle school students start selling fake military plans to the KGB to pay for their music teacher’s eye operation.”
That’s the one, thanks so much.
Making solved.