The City isn't going to grade-separate the University Avenue crossing now. This would mean massive disruption in the area and would result in a years-long interruption in LRT service on the Capital Line (trains would be replaced by buses running between Health Sciences or University and Century Park). The other issue is that doing so would take scarce funds away from other future LRT projects like the Metro Line to Castle Downs.
This is why it is vital to do the Capital Line South Phase One extension right the first time. It will be enormously difficult and expensive to fix later when problems become unmanageable.
But even in a perfect world where the University Avenue crossing could be trenched, the Metro Line wouldn't be extended to Century Park alongside the Capital Line, because in that scenario it wouldn't just be an at-grade University Avenue crossing that would pose problems. As I understand it, there would be too many trains running through all the at-grade intersections south of University Avenue (such as 76 Avenue, 51 Avenue, 40 Avenue, etc.) and the gates would be down too often at peak times, messing with vehicular traffic flow.
My personal preference is (when the new NAIT station opens and platforms can accommodate 5 car trains) extending the Metro Line to Century Park and truncating the Capital Line at Health Sciences. There are plenty of riders traveling between South Edmonton and NAIT and Grant MacEwan, there are comparatively few riding between South Edmonton and Clareview or Belvedere. Let the latter change trains.