I'm currently working in Congress and so know a little about this topic because of my issue areas. Here's my two cents...
Yes, this type of activity is covered under part of the Patriot Act, which is expiring. In the reauthorization bill for this year, the power allowing this type of activity is restored and gives government officials the ability to track and investigate anybody's books, gun sales (which places many gun owners in opposition to the act), phone records, etc. if that person is "reasonably expected" to be involved in terrorist activity. While the article did not mention whether this particular student was suspected of terrorist activity, it seems pretty unlikely, and thus I would say that this is likely an abuse of an act that is already abusive to civil liberties. Unfortunately, the Patriot Act is pretty quiet on the topic of what recourse citizens abused under the auspices of the act have (shocking right?), so this guy is pretty much out of luck when it comes to justice.
But yes, basically the Patriot Act says the government can investigate nearly any part of a person's life if that person is suspected of terrorist activity and the investigator can establish that the information would be "relevant" to the investigation. The search must also be cleared through the agency director, but that's basically just bureaucratic comfort language.
At least the Senate shot the thing down (thank you Sen. Russ Feingold). However, with the new executive privileges Bush started trying to assert this week, it probably won't matter. The whole "government can spy on you now" story from this week is basically what Bush is doing because the Patriot Act reauthorization is killed; his new policy, administered under "executive privilege" of the Constitution means that he just does what the Patriot Act allowed him to do without being authorized to do it under the Patriot Act.
So he needed a law to say he could do it before. That law expired, so he's just saying he can do it because, turns out, it was an executive power all along! How convenient! If I may, WHAT THE FUCKING FUCK!? If he needed a law before, it's clearly outside the bounds of his Constitutional powers to do it in absence of the law. This is a gross abuse of executive power.
I would tell you to write to your congressman, but as one of the people who answers those letters, I can guarantee you it is futile. Please go campaign for candidates who know what the hell civil liberties are and have the courage and conviction to protect them. Sure, campaigners are paid in pizza and faint praise, but you get to keep the t-shirts. Good times.
Hmm... I hope I don't go on a watch list for writing this. Oh well, I once said I wanted to pants John Ashcroft, so I've probably been on the list for awhile now anyway.