While at university I had a similar interaction. When the main university IT services team wanted to roll out a replacement to the student portal with a bunch of irrelevant features I mocked up a simple site with the things we actually wanted on it. Later on I re-implemented our students union website, again providing more useful information, like venue schedules and opening hours.
Both times we came under scrutiny for the possibility that we might be handling student data in ways that the university couldn't control, and mostly, that we might be taking passwords on behalf of users.
The first was just a mockup, and while the second initially had full university auth against their open LDAP server, we quickly removed that in favour of our own auth, because it was very apparent that the password input being on our domain was a dealbreaker for the university.
By doing this, and by communicating carefully about what we were doing and what we were not doing, where the boundaries were, and how we handled data, we managed to win them around to some productive discussions. Most of the people we spoke to on university staff who were involved in this were not at the technical level to be able to understand, for example, having an unsecured LDAP server that we could auth against, and were only interested in the policy of whether we were allowed to do it.
It's a common failure mode of software engineers to assume that because something is not technically disallowed, even though it could be, that it must therefore be allowed. This is not true.
What's not clear with this project is whether the university have a fundamental disagreement with the idea of a student project providing services, or if someone has panicked that a non-approved system might be receiving passwords from students. The former is obviously ridiculous, universities should be open to this sort of innovation, especially from their students. But the latter is understandable and a fairly reasonable response, but one that does need careful handling by the student to navigate well.