Shortly after the bus broke down, a commuter train slammed into it on the crossing, as shaken pupils watched.
After bringing the children and herself to safety, the driver had also tried to alert rail staff by phone, but could not prevent the collision.
The crossing at Buxtehude southwest of Hamburg was reopened late on Wednesday afternoon after repairs.
'A train is coming!'
One pupil, 15-year-old Marvin, said that one of the young occupants had called out: "Oh god, a train is coming!" Then the barrier went down to stop other vehicles from crossing. The 23-year-old driver urged everyone to leave the bus.
"The lady prevented the worst from happening through her quick action," said police spokesman Rainer Bohmbach.
Sixty seconds later the train, a double-decker operated by the firm Metronom and en route from Hamburg to Cuxhaven, rammed into the rear of the hurriedly vacated two-segment "bendy" bus.
Bus' connecting joint jammed
"Everyone screamed, all had shaking legs," said Marvin, who also filmed the collision using his mobile phone, from the safety of an adjacent road.
Police said emergency braking activated by the train driver failed to avert the collision.
An initial check indicated that the bus' connecting joint had jammed as the vehicle turned hard right at the crossing, because of a road works diversion notice. Then, its motor failed to restart.
Linkage via parent firm
Metronom, a private rail operator in Germany's northern state of Lower Saxony, transports some 95,000 passengers each day.
The bus' operator, KVG, is based in the same state's city of Stade.
Both firms are subsidiaries of the Berlin-based parent concern Netinera, whose investors are based in Italy and Luxembourg.
It is a rival of the much larger state-owned concern German Rail, otherwise known as Deutsche Bahn, which moves more than six million passengers each day.
ipj/msh (dpa, AFP)
Comment: Here is a video of the incident: