"Part 61.235 now states that the applicant holds a current medical certificate of the class required for the exercise of the privileges of the licence."
Sorry but I don't have the ability to look up that reference at the moment and I am not familiar with the flying training aspect of the new rules, however by reading what you have written, I interpret that your student will be fine to do the test. He won't be "excercising the privileges of the license" so therefore will not need to hold a Class 1 for the test.
Having said that though, ask two different FOIs and you will get two different answers, and don't bother waiting for licensingregs to get back to you as amongst many others I have not heard back for several weeks for questions that you know, we want the answers to so that we can ensure we are doing the right thing and keeping legal and safe.. Just call up first thing tomorrow morning and ask how you are to conduct business legally, and record the conversation in some way and tell them that- especially if you are allowed to conduct business as you currently are.
Looking forward to tomorrow!