wanafunzi can mean pupils or students, and pupils was not accepted as an answer
This question is in the exercise multiple times
A lot of students is much more natural English. Many tends to be used in the negative, e.g. There aren't many students.
Many students prefer online course materials to textbooks.
Both should be accepted. As juryrigging pointed out, "many" is not that unusual in positive sentences. "Much" is very unusual in most positive sentences (eg. "He has much money"), but "many" is just a bit more formal.