What federal law makes schools block commercial email like yahoo and hotmail for its students?
There is no Federal law that makes schools do this. It is simply good practice in schools and company networks to block access to web mail. Most organizations put substantial effort into blocking attachments on inbound email that could be malware and using various anti virus tools to scan all attachments for malware. Targeted email with malware attachments is one of the leading, if not the top, tools of compromise. However all these defense mechanisms are worthless if access to web mail is allowed. The user can access their web mail and open attachments with virtually no protection to the infrastructure. The only defense at that point is whatever anti virus that is installed on the end user PC and hoping the signatures are up to date.