FLT INSTRUCTOR; WITH STUDENT; DISABLED DIRECTIONAL GYRO IN IMC. OTHER TFC INVOLVED.

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I WAS ON THE LAST LEG OF AN IFR XCOUNTRY WITH MY STUDENT. I AM AN INSTRUCTOR AND HAVE APPROX 150 HRS OF DUAL GIVEN. THE OCCURRENCE TOOK PLACE ON THE LAST LEG OF THE XCOUNTRY WHILE RETURNING TO GFK. MY STUDENT IS VERY COMPETENT AND HAD PERFORMED FLAWLESSLY THROUGHOUT THE FLT. AFTER COMPLETING OUR APCH AT GAF (IN IMC) WE RECEIVED VECTORS FROM GFK APCH CTL FOR THE ILS TO RWY 35L FOR A FULL STOP LNDG. WHILE RECEIVING VECTORS FOR THE APCH; I PULLED MY STUDENT'S ELECTRIC DIRECTIONAL GYRO/HSI UNIT. I ASKED THE STUDENT WHAT HE PLANNED TO DO TO DEAL WITH THE SIT. THE STUDENT THEN DECIDED TO REQUEST 'NO GYRO VECTORS' FROM GFK APCH FOR THE ILS RWY 35L. GFK APCH INITIATED THE NO GYRO VECTORS AT THAT TIME. MY STUDENT AND I DISCUSSED HOW WE WOULD COMMENCE WITH THE APCH (APCH BRIEFING). I PULLED THE COMPASS CIRCUIT BREAKER TO DISABLE THE DIRECTIONAL GYRO. WE WERE HDG S FROM GAF TO GFK. AFTER TUNING AND IDENTING GFK; WE WERE GIVEN OUR FINAL NO-GYRO VECTOR AND APCH CLRNC. WE WERE CLRED FOR THE ILS RWY 35L. WE INTERCEPTED THE FINAL APCH COURSE AND MY STUDENT STARTED TO TRACK INBOUND AND INITIALLY THINGS WERE GOING WELL; THEN THE CDI BEGAN TO DEVIATE AND EVENTUALLY WENT FULL SCALE. THE DEVS WERE MOST LIKELY THE RESULT OF THE STUDENT OVERCORRECTING ON THE APCH COURSE. WHEN THE CDI WENT FULL SCALE I TOLD THE STUDENT TO EXECUTE A MISSED APCH. I ALSO DECIDED TO RESET THE COMPASS CIRCUIT BREAKER TO RESET THE DIRECTIONAL GYRO. GFK TWR TOLD US TO TRACK INBOUND ON THE LOC COURSE WHICH WE PROCEEDED TO DO. WHILE THIS WAS OCCURRING; THE DIRECTIONAL GYRO DID NOT BEGIN TO ALIGN ITSELF WITH OUR MAGNETIC HDG AND IT SIMPLY FROZE. I WAS PREOCCUPIED WITH RESETTING THE DIRECTIONAL GYRO AND FOR THAT INSTANT I LET MY STUDENT FLY ME AROUND THE SKY. OUR DIRECTIONAL GYRO WAS INOP AT THAT MOMENT AND I DECIDED TO TAKE CTL OF THE ACFT. TWR ASSIGNED US A 270 DEG HDG AND TO MY BET ESTIMATE WE WERE HDG ROUGHLY 250 DEGS. USING THE COMPASS FOR HDG INFO; I EXECUTED A R TURN TO PUT US BACK ON COURSE. I THEN ASKED TO BE SWITCHED BACK TO APCH. ONCE I WAS BACK WITH APCH; I ASKED TO MAINTAIN MY CURRENT HDG OF 270 DEGS WHILE WE TROUBLESHOT THE PROB. AFTER MANUALLY ALIGNING THE DIRECTIONAL GYRO TO THE COMPASS WE RECEIVED VECTORS FOR THE ILS RWY 35L; DID THE APCH WITHOUT INCIDENT AND LANDED THE ACFT. AFTER LNDG; MY STUDENT AND I DEBRIEFED ON THE OCCURRENCE AND I EXPLAINED WHAT HAD HAPPENED. WE BOTH DISCUSSED THE CHAIN OF EVENTS THAT TOOK PLACE AND REALIZED THAT IMC WAS NOT THE TIME OR PLACE TO BE 'PULLING' INSTS. ON THE DATE OF THE INCIDENT I WAS NOT TOLD BY ANY ATC AUTH THAT ACTION WAS BEING TAKEN AGAINST ME. HOWEVER; TODAY I WAS TOLD THAT ATC HAD TO FILE A SEPARATION VIOLATION BECAUSE OUR ACFT CAME WITHIN 1 MI OF ANOTHER ACFT ON THE ILS. I FEEL THE ACTIONS AND DECISIONS MADE ON THAT DAY WERE FOR THE MOST PART ACCEPTABLE. HOWEVER; AS I SAID BEFORE; I WILL NOT FAIL INSTS UNDER IMC AGAIN. I ALSO BELIEVE THE BEST WAY TO PREVENT SUCH AN OCCURRENCE FROM HAPPENING AGAIN IS TO FLY UNDER ACTUAL IMC WITH ALL INST OPERATING!