What you do is tell them you're talking to a few other HA schools between D1 and D3, and that you want to go the HA route. Then you mention the D2s and that it's appealing because between their offers and merit awards it would be extremely cheap. If your son is a HA type he would most likely be in the merit bracket as D2s typically aren't HA.
I know that is not the route you intend to go and full honesty is great morally, but on the recruiting trail it won't do him a ton of favors. Yes it will be a red flag, especially if it's a young coach just starting to recruit. Knowing that there aren't any other offers (especially offers that entail money) they will be less likely to push him thru admissions and will basically tell him to come to the school and he'll make the fall roster. The fact that it is Ivy (no money) helps, but the truth is that if he's still around in Sept and there are no other D1s on him then it is for a good reason.