That logic usually works, but I've found that teachers are a stingy group when it comes to paying for classroom services. I think that the risk of making the product seem too cheap is outweighed by the risk of teachers being reluctant to spend a significant amount on their classes. Wikispaces, another product partially targeted at teachers, has a $5/month option as well.
I've found that teachers are a stingy group when it comes to paying for classroom services.
What data do you have which supports this contention? Is it more of a "gut feeling"? I had that gut feeling once myself, and you know what? It is a lie. A myth. Totally contrary to empirically observable fact.
The average teacher in the United States spends $200 to $400 of her own money per year (varies with level and geography, and I've seen a few numbers quoted from different studies) on instructional supplies.
The average customer for Bingo Card Creator spends $32.50 on a program which most use once or twice per year. (Which is still cheaper than the laminated set of bingo cards they were about to buy at the teaching store. Those cards are on the shelves because they sell.) I have a trial-to-purchase conversion of about 2.3% for my online version, which is considered fairly good.
Some teachers do complain about the price. That is a good sign -- if no one is complaining that it is too expensive, you've priced it too low.
While we have a $5/month option, Wikispaces has offered a free service (no ads, same features as paid service, no strings) for K-12 teachers since early 2006. We've given away around 225K wikis under this plan. http://www.wikispaces.com/site/for/teachers
I'd look to offer something in the $30 range as your first paid tier.