Monkey, given your SO's use pattern, I’ll cast another vote for the 16/512 combo, although the 8/512 could work well, too.
In the past, the 512 GB SSDs were substantially faster than the base 256 GBs, so that's a worthwhile upgrade.
Her “stuff” will continue to accumulate, semester by semester, year after year, so the larger drive makes sense for that reason, too. Plus, if students start turning in video projects, or she gets into photography and videos herself, more space will be useful, even necessary.
Weirdly, Apple's no longer giving an educational discount on the SSD upgrade, so that’s still $200 extra. But, spread over, say, another 6 years, that’s peanuts!
What I don't understand is the beach balling and slow downs on her 2016 MBA. I use a 2015 MBA with a somewhat similar use pattern and have no problems. Speedy, responsive, and still going strong. Is she using Chrome as her browser by any chance? Which OS is she on? Does she leave apps open and hardly ever reboot the MBA?
Maybe it's time for a complete backup and fresh install — and a switch to Safari and regularly quitting unused programs.
Still recommend a first-hand test of the typing experience of the M1 and M2 MBAs, when that comes out. She may be so used to the tapered edge that the front squared edge of the M2 will prove uncomfortable to her. Maybe, you have a MacBook Pro in the house she could try to get a feel for what the squared edge feels like to her!
OTOH, MagSafe can be a lifesaver, so that would point to the M2.