If you think he might be into music in the longer term, I'd suggest piano/keyboard lessons first. I think it would have a greater common ground for other instruments he might want to branch out into. You can still jam with him on guitar too.
If not that, I'm personally biased toward percussion instruments, but the equipment space/cost is pretty high.
Either way, spring for lessons. Two reasons. 1) He'll improve exponentially faster, even compared to you teaching him (although you teaching him will probably work for the real early stuff if you wanna save a few bucks). Make sure said teacher teaches him to read music.
2nd reason.... broke undergrads need $$
Above all, make sure he's having fun playing at this point. At this point, the instrument he chooses is somewhat irrelevant. You're just trying to cultivate an interest/passion in music right now IMO, no need to worry too much if he's not a savant right away. Also, don't be discouraged if he ends up not loving the first instrument you choose.
Finally, if you're stuck on getting him a guitar, Yamaha has some really decent student model acoustic guitars at very reasonable prices. I do like the idea that was posted earlier itt about possibly getting him an electric w/amp if he gets into it and shows a longterm interest.