Ok, I don't know which permissions are still in place, so... re-do everything.
On the FOLDER - TEACHER1 set the following permissions:
Select the SECURITY TAB, select ADVANCED, select CHANGE PERMISSIONS under Permissions tab, click ADD and select the TeacherGroup:
Select everything EXCEPT:
Full Control, Change Permissions, Take ownership.
Click OK.
Now do the same thing for group STUDENTS and select all permissions EXCEPT:
Full control, Delete, Change Permissions, Take ownership.
Click OK.
Now you should UN-tick INCLUDE INHERITABLE PERMISSIONS... but everything depends HOW do you map drives. With the permissions given above, all the teache can write and do almost all on that folder, students only read, save and modify.