The tuning and tone quality issues of the closed hole flute have not been proven. But what can be a difference is that manufacturing quality is ofter better on the open hole flute because it requires more artisan attention. So, what is percieved to be a problem from the closed holes is sometimes just manufacturing and design flaws.
Your situation, starting kids in 5th Grade, who can be on the small side, I think you would be okay with closed hole flutes, but you should buy the better quality instruments. You should also think about purchasing some step up flutes for your more advanced kids and give your younger ones something to look forward to.