Without the copyright agreement in question, it's hard to be specific to your situation. Nevertheless, this sounds quite odd - while it could be the case, I think you've either misinterpreted it or left out a vital piece of information. In particular, the following, if correct, is extremely disconcerting:
The copyright agreement, as written, seems to prevent them from publishing the work elsewhere after the work is submitted
This could potentially limit your ability to publish your thesis as academic journal articles after you've assigned the copyright (On the other hand, since these are rarely word-for-word from the thesis, you may still be OK. Ask a copyright lawyer.)
Typically, there is some transfer of rights from the student to the university, for a few reasons:
- So that the university can keep a copy in the library, allow people to consult it, provide to other institutions via interlibrary lending systems
- So that the university can provide a copy online, via their institutional digital repository
- So that the university can provide the thesis, or details thereof, to external indexing systems and repositories (e.g. EThOS)
Typically, the student/supervisor can request temporary or permanent embargo of these rights if there's an appropriate justification. Some (non-exhaustive) examples:
- To allow time for the preparation of journal articles/monographs from the work contained in the thesis
- Releasing the thesis would violate third party copyright on material that is integral to the thesis
- Releasing the thesis would create some risk to the supervisor, student, institution or a third party
- Releasing the thesis violates confidentiality/non-disclosure agreements with a third party (e.g. an industrial research sponsor or interview subjects)
Finally, there may be specific restrictions on an individual's project (this is sort of covered by the last point above). Most commonly, these would be industrial/third party sponsors who own the IP generated in the project and don't want it republished for all the world to see.
I am wondering if you are confusing some other, specific, restriction for a general policy? For instance, if you have an industrial sponsor, you may have assigned the IP arising from your project to them. Although such an agreement would usually exclude the copyright on the thesis per se, it would include a confidentiality clause for the thesis because the other IP in the thesis (potential trade secrets or patentable IP) would belong to them.
Typically, you would expect to assign your university non-exclusive royalty-free rights to your thesis.