He told the students to pay money towards classroom renovations and he gives them grades accordingly

The teacher
does not have the right to take anything from the students, even if that
this for the purpose of renovating the classroom, because that is not the
responsibility of the students; rather it is the responsibility of the
school. This money in many ways is similar to the haraam maks (customs levy
or purchase tax) – see question no.
39461
concerning the prohibition of the maks. 

Marks for
participation are only given to students for their efforts and hard work in
their studies, not for giving money to the teacher! The same applies to
grades in the test, they should be based on what the student has written on
his test paper, and have nothing to do with renovation or adornment of the
classroom. 

If the
teacher gives marks to students in return for them giving him money, this
goes against the education system and is also wronging people with regard to
their wealth, and exposing the poorer students to embarrassment when they
have to tell him that they cannot pay all or some of the money. 

The teacher
has to fear Allaah and give each student the grades that he deserves
according to the education system that is in place. He should not ask the
students for money, no matter how little. 

The teacher
should encourage the students to donate money for repairs to the classroom,
or for any other charitable cause. That comes under the heading of
cooperating in righteousness and piety. It also makes the students get used
to spending money on charitable causes. But that should have nothing to do
with the grades that the students get. 

And Allaah
knows best.