Prices are in $AUS and were correct at time of publication but are subject to change.

Recommended

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SketchBookExpress - Free - $1.99

An easy to use drawing program with a very user friendly interface. For the not so great drawer this app is quite likely all you will need. The basic palette actually has quite a large range of brush types and colour options. Shape and symmetrical line drawing tools are also available. It is quite useful as a notation tool for drawing diagrams to which written or printed text can be added. Images have to be exported to the app's own gallery before they can be exported to the iPad Photo Gallery. For more features consider upgrading to SketchBook Pro.
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WeeMee Avatar Creator - $0.99

A very versatile app for students to create personal avatars. There are in app purchases for additional galleries but the free version is ample for schools with a selection of 300 hairstyles, clothing, eyewear, accessories and backgrounds to mix and match. Avatars export to its own gallery but you can simply take a screen shot of your avatar and edit the image in your photo library. Alternatively here is a link to a listing of 27 free avatar creation websites.

Worth Considering

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TypeDrawing - $2.99

Drawing with words is an unusual concept that produces interesting results. Start by typing in a word or sentence, Words will then follow your finger's path around the screen. Supports multiple fonts types and colours. Zoom and pinch and add backgrounds to mix images with your text.