1 - Pay off mortgage, invest the rest. Since your income is low, I'd recommend stability over growth - something like a 60/40 total market index fund to total market bond fund. That part is easy, especially since the Target 2030 probably does this already for you.
The hard part is expenses. You said $400 was grocery money - for how many people is that? What else do you spend on? Medical care, car/insurance/gas/transportation, home repairs, clothing, property tax? Even with a paid-off house, 400/month won't go far at all. Obviously that's a concern.
2 - I agree that it sucks, but your kids are on their own. They're adults. If it makes you feel better, making your kids actually adults, not just legally adults, before you're ready is probably good for them - they'll be ready before you're ready for them to be ready, if you know what I mean; they're itching to take the reins to their life as much as you're itching to be the providing parent.
Don't look into colleges with high graduation rates and low indebtedness by itself, and definitely not primarily. If college is the means to make a career, I'd look into what that career looks like long before I'd look at specific colleges. An engineer graduating with $50k in debt will do way better, most likely, than a communications major graduating debt-free. If college is not the means to a career, but just "the next stepping stone," then other alternatives should be researched - namely, skilled trades, which take far less extra education (money, time, opportunity cost) and have an immediate, and pretty damn good, payoff. I'd be a mechanic over a communications major any day, you know?