yep, as long as the domain is verified in Azure, you can use it as the domain suffix for the User Logon. All you need to do is set that when creating the accounts.
As far as SSPR, you can scope to a specific group, so create an Azure group of those students (dynamic?) and set SSPR to that:
https://learn.microsoft.com/en-us/azure/active-directory/enterprise-users/groups-dynamic-membership