Had a discussion with a relative, who is an expert in Indo-Srilanka affairs. The government has declared holiday for colleges as most political parties use the student population to take to the roads to protest. With the current DMK government going again the LTTE openly, there are bound to be clashes between the other political parties, and the police. And more often that not, it means that students will also be hurt, which will again compound the problem.
So according to him, this is basically for student's safety. He predicts that it will be for at least a week, and can go upto 10 days till the tension in the state is diffused.
Also, most colleges are giving an option for other state/nationality students to stay at the hostels. They are asking the local students to vacate though. This is the same case in my college, where 20 of my classmates have been allowed to stay at the hostel, cause they have no where to go on such a short notice.