Question 2
Mary's practice of peer grading does not violate FERPA.
The answers each student provided in response to Mary's quiz were indeed directly related to a student. As the quiz answers are being graded, however--and before they are ultimately delivered to Mary--they are not being maintained by the institution, or a party acting for the institution. Consequently, they are not education records, and not being disclosed wrongfully to the students in Mary's class. The peer grading practice that Mary follows, then, does not violate FERPA.
Grades and other indicators of student progress will typically constitute information directly related to a student as maintained by an institution. Accordingly, the grades an instructor maintains about students will nearly always be deemed education records under FERPA, and the institution generally may not disclose grades to anyone other than the student without the student's prior consent.
An instructor, then, should take care to keep student grades in a confidential manner. The following hypothetical fact scenarios will better illustrate this point.