I think it may have been something more practical. It was obvious by the end of GFII that Michael was not through with crime. He would still have to face the repurscussions of the deaths of Pentangeli, Fredo and Roth. He was by then a very public figure, and I would imagine that the safety of his children, let alone their ability to grow up "normally" on that compound in Nevada would be compromised. By turning them over to Kay he knew they would get properly educated, be out of the limelight and out of danger (they would be reduced to the status of "civilians").

Also, Mike himself being a Dartmouth grad probably figured an education for his kids back east would be a good thing. He probably was thrilled that Anthony would finish a law degree, because then he obviously planned to work both of them back into his web by putting them on the Corleone foundation.