I think it should not matter. She said she needs it as a down payment to be able to afford mortgage payment. So we can assume that it’s all if not the most of what she got. Her immediate need to fund her own living should be the priority over the child’s college fund.
We do know that the child will at least qualify for in-state tuition, and guaranteed admission to an in-state 2 years college in the worst case. We also know that reserving the fund for college can only be detrimental to need-based financial aid, regardless of the child’s own qualification and ability/willingness of the father’s support.
Should the mom decide to use the fund for the child’s tuition, it should be her decision at the time, and she can still use the fund to buy a house, and later refinance or sell it.
It should not matter either. She cannot estimate the future situation accurately enough to make a fine tuned decision. I doubt if anyone possibly can at the moment. Hence, she should make a safer and more versatile decision which is preserving her rights on how to use the fund by gaining control of all her portion, against her husband’s intention.
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This is of course, just my philosophy. You may still disagree.
But than we haven’t even started with possible tricks to be played on or other unforeseen problems that may rise from her loosing control of the fund.