I actually think that, given Otakun's situation, a confession would be better. Usually I'm all for going on a date, kissing madly, and then having the "um, I really like you, let's date for reals" conversation later.

But considering the limbo they're in, and the fact that they both seem quite shy about the whole thing, I think a confession would be better.

But don't treat it as some super serious, dire thing. Take her out on a nice date (maybe over winter break?). Do something both of you enjoy... then, after you've had a wonderful time, steer her to some private place you can really talk. Take her hand and tell her what you feel. Don't overwhelm her with how you feel, just say something like "I really like you, will you be my girlfriend?"

And then, provided she says yes, kiss her. A lot.

And do it soon! You're at the perfect stage in a relationship for it - wait too long, and you might lose your chance.