Looking purely from a numbers perspective, $200K of debt on a combined income of $150K (assuming your son's fiancee makes about $50K) is doable. Debt payments would total about $28K/year for 10 years @ 6.8%, and federal income tax would be about $30K/year, leaving about $92K take-home pay. This is equivalent to a combined income of $112K with no debt payments.
Also, it seems like buying a house is no longer assumed for this generation, especially in urban areas where an MPP grad is likely to live. It sounds like that's a tradeoff your son is willing to make to pursue the career he wants.
Unless this is a super small program, it's probably the case that they accepted, for example, 20 people for an entering class of 15. If so, then you'd need 2 more than the expected 5 to decline the offer.
Your V and Q scores are high enough for Master's in Education programs (HGSE's averages are 600V/660Q). Your writing score is a bit lower than most program's averages, but not significantly so. Since you're applying for Fall 2013, you have time to prepare for a retake, but on the other hand, you'd have to prep for the new test format, which may or may not play to your strengths.