At this time, we do not support alternative sorting methods for students within a section, though we hope to include such features in the future.
Note that many teachers use a workaround for this: We recommend asking students of yours to each go into their Account Settings page to change their display name to read "Last name, First name"
This will influence the standard A-Z sorting by first name, and thus result in sorting by last name. You as the teacher can also change any student's display name in this manner, from the "Manage Students" tab in any section of yours.