bfisk,
On a purely solo flight then the student would be P1 and would log the time accordingly.
The scenario here is different. Student goes out to aircraft and starts having been told to do so by the instructor, who will then join for a dual training lesson.
In any case students sign no 'agreement' until they begin to self fly hire. Shouldn't matter what the FTO say it doesn't change the fact that the full repair costs are down to them.