Michael,
Great job getting money out of the school for the team, even though it's just $500. That means the school supports the program more than it's worried about it. That is a huge victory.
That said, $500 plus your $1000 can get you started. I would highly suggest starting an air rifle only team for multiple reasons.
The first is the ability to shoot air rifle more anywhere. You just need about 13-15m to fit a range with backstop and ample room behind the firing line. Allow about 1m per shooting point. If your school has any racketball courts, on court makes a great 5-6 point range. Traps are relatively inexpensive to construct, and in addition, you don't have to make many since you likely will have only so many air guns. No special ventilation needed. just lean some sheets of plywood against the wall behind the traps to catch errant pellets.
Second, the guns and ammo are, relatively, cheap. Search around for some Feinwerkbau 300s. They were some of the first competition air rifles imported to the US. They are about $400-$600 used. They're pump guns, so no need for scuba tanks right off the back. And don't let anyone tell you they're not accurate. You'd need to be a high level college shooter, if not world class to be able to truely claim you can out-shoot the gun.
Third, I can only think of one smallbore only collegiate team (Princeton). All other college teams have at least air rifle. Even if you travel to a team that shoots both smallbore and air, don't worry about it. Club teams shoot against NCAA teams all the time. And everyone wants to help out an up and coming club.
Also, contact your NRA Field Rep about Friends of the NRA grants. The deadline here in NC is fast approaching, but you could get more money via grants. I believe NSSF has a grant system as well. And there is another system where donations can be made and matched, then you are awarded a percentage of that money annually (with paperwork of course).
Here is how I would do it in your shoes. Buy 2 FWB 300s and ask the sellers to make a generous price drop for a new collegiate program (say $350 each). Make 2 backstops and buy enough plywood to cover ample wall space behind (~$100-200 depending on donations and creativity). Buy a sleeve of pellets and about 500 targets (~$150). Use some of it to get yourself trained by taking the NRA Coach School (
http://www.nrahq.org/education/training/coaching/coach_training_schools.asp). Closest one is in CO, but it will be well worth your time.
Then get to recruiting people interested in the shooting sports. Don't make it about just the air rifle team, any disciple just to get people interested and word of mouth spreads. Do some get togethers where ever you can, shooting whatever you can. Drop hints about an air rifle team, and see who's interested. Since you have only 2 guns and 2 traps, you have a limit on the amount of practice time available, but that means you can really coach them in air rifle at the same time. If you get anyone that thinks air rifle won't be fun, challenge them by showing them the target up close, and then back away 11 good sized steps and ask if it still looks too easy.
I'd set dues at $40-50 for the year. I know that sounds high, but if you get 7 interested, there's another air rifle. Maybe offer a $20-25 per semester option, but the $50 gets their money in up front, keeping them interested. Maybe have that include your first local shoot with the club is free.
Schedule practices as you can. Use tables at the fining line instead of offhand stands. Ask them to wear a sweatshirt and the most supportive shoes that have available to start. Anyone who gets bitten by the bug, suggest they buy a shooting coat and glove. That way, everyone serious about it has a coach of a appropriate size. If you have two shooters of similar size, suggest a little sharing. I'd make a ladder of some sort to rank the shooters on, say, the average of their top 3-5 practice scores. Once you get match scores in, add the match average to the ladder as 75% of the ranking. Since you likely won't travel much the first year, host a match at home every month just amongst yourselves. Anything to keep the shooters actively involved.
Call the closest shooting programs you can find whether they are NCAA, Club, or Junior Programs. See who would be willing to get you shoot matches at their range, and then get to planning travel. Ask if they have any suggestions for accommodations, buddy buddy up with the team members for a possible dinner out, or lunch at the dining hall (all college students with a meal plan can spare a meal for a guest. Maybe next time you go, some of your shooters could bum floor space in dorms or apartments. At the match, there will likely be two relays, possibly three, so you could get 4-6 shooters in the match. Don't worry about winning of course. Set personal and team goals and make those the important targets for the year.
Then next year, with your $500, get another FWB 300, targets, pellets, recruit, travel to one more match taking a few extra shooters. Set new team and personal goals, have an awards banquet at the end of the year for highest match average, most improved, and any other award you want. It'll be a slow growing process, but you'll eventually have that year it will explode, you'll get a ton of interest, and the program will be set for a while. At some point, start building a bank of equipment (coats, pants, offhand stands, etc). Buy some slings and start doing 3P air at some point as training for smallbore. Some schools will loan you .22s when you get there. There isn't much difference between air and smallbore, but your shooters will struggle with smallbore their first time, just have them keep at it.
Let me know if I can do anything to help.
He was quite happy to be given the gift of a few curriculum improvements when I went through his class. I do believe I received an "A," though my memory's fuzzy now. 
