It should be estoy estudiando because 'yo estudio' means i study, not i am studying
English and Spanish don't treat the present tense the same way.
English uses the simple present tense ("I study") to indicate something ongoing or habitual, and the present progressive ("I am studying") to indicate a current or near-future action.
Spanish, however, uses the simple present ("Yo estudio") to indicate a current action, and the present progressive ("Estoy estudiando") to emphasize that this is what they are doing right now.
The difference? When an English speaker says, "I am studying," they might be looking for their homework, googling something unrelated, texting a friend, getting a glass of water, etc. When a Spanish speaker says it, it means that at this very moment they are reading over their notes. Period.
(Yo) estudio is present tense. In Spanish, the present tense can be used to talk about what happens or what is happening. Here, that would be I study and I am studying.
If your answer was I study with my Spanish friends or (Yo) Estoy estudiando con mis amigas españolas and it was rejected, you should use the report button to say that your answer should be accepted.
Mis amigas should also be girl friends. You marked this response as incorrect.