How do I market to college students?
First, I'd encourage you to really understand how your site is better and different than others (like Craigslist or eBay). This understanding will drive a lot of your marketing programs. It sounds like you've got a site that will let students do a lot -- and that breadth of application can be challenging. Can you think of specific problems that you can solve well (and better than others)? Carpooling? Finding a roommate? Textbook exchange? Finding a niche might help get some initial traffic. I'm sure that you recognize that word travels quickly once you generate some initial success.
I do like your thoughts about starting small -- focusing on one or two schools at first. This helps narrow your focus and might help your advertising dollars go smaller. You may find local pay-per-click ads cost-effective, and should also be looking at social media to spread the word.
But don't let online tools be your only way to gain customers. Go to campus -- talk to students (and listen!). Put up posters. Sponsor an event. Beg. You should be working now to be part of the back-to-school programs for the fall -- those are great opportunities to reach out.