Wouldn't a process-based architecture be more suited to what he's doing (running arbitrary code)? It'd give you the chance to lock it down tightly if you wished within the OS itself, on top of the JVM security.
Good one: even if he cannot stop a thread, he can sure as hell stop the OS process in which the JVM runs. So give each student's program its own JVM or at least explain to the reader why that is not a satisfactory fix.