Q: Should I let my kid take out loans for college? What's the most efficient way to fund education?

In 30 seconds: Chinese families habitually sell stock and pay full tuition in cash — James says that breaks the compounding. The principle is “borrow what you can, invest what you can”:¹

• Simplest: pay tuition with a PAL (a pledged-stock line of credit), don’t sell stock, let assets keep compounding.
• If the child is willing: use a student loan — American kids almost all carry student debt; only Chinese kids don’t. Student loans can be deferred, even chosen not to repay, effectively borrowing several years of investing time on the child’s credit.
• More advanced: open a custodial account early and gift into it each year (e.g. $20k) so it compounds; by graduation the balance may already exceed the loan. In a line: don’t look at that one tuition bill — look at whether the family’s total investment assets grow and the compounding stays unbroken.¹

How people actually ask it

• “Should I sell stock and pay my kid’s full tuition in cash?”
• “Should I let the child carry the student loan themselves? Chinese families don’t usually do this.”
• “What’s the most efficient way to build a college fund?”
• “PAL financing vs. letting the child take a student loan — which is better?”

Three ways to pay tuition, and how to choose

a member used Claude Code to backtest three options for three children (backtest start 2013):¹

1. Liquidate assets (sell stock for tuition) — worst: it breaks the compounding, killing the goose that lays golden eggs.
2. Pay tuition with a PAL — uses your own credit line, doesn’t sell stock, keeps assets invested. Simplest, not bad.
3. Let the child take a student loan — uses the child’s own credit, repaid by them later.
   • Mechanics: federal direct loans cap at a few thousand a year; top up with private loans (roughly $50k/year cap for undergrad).
   • The big edge is deferred repayment: no payments while the child is in school with no job; repayment starts after graduation — and they can even choose not to repay (roll it forward).

Result: the two “borrow-to-pay, don’t sell stock” methods (PAL and student loan) end up roughly equal (similar rates) and both far beat selling stock. James’s simplification: for simplicity, pay with a PAL; whether to let the child carry a student loan depends on the child’s temperament —¹

• Some kids say “Dad tells me to borrow, so I borrow”; others say “I’m scared of debt, it stresses me.” Even adults fear borrowing, let alone a child. Ask how the child feels first; don’t force a loan on them.

Advanced: custodial account + annual gifting, so the child’s money grows itself

James’s longer-horizon method — open a custodial account before the child even starts college:¹

• Each year, gift the child a sum (e.g. $10k–$20k) into index compounding. This is a gift, not you borrowing to invest, so the growth is theirs.
• If you simultaneously let the child carry a student loan while putting the equivalent into their custodial account to invest, by graduation the account may already exceed the loan — “borrow the money, and their own money never gets spent,” with far less psychological pressure.
• Timing: a custodial account usually transfers to the child only at 24 or 26. Do not hand over the account until the child fully believes in index investing — an investment account is a drug; they’ll likely go buy Bitcoin or gamble on Robinhood and “you can’t pull them back.” Do it in front of them until they say “Dad, I get it, you don’t need to manage it for me” — only then hand it over.
• The psychology of ownership: while the account is in your hands the child feels “it’s yours,” and won’t want to deposit their own earnings later; only when you say “I’m no longer managing your account” do they gain ownership and start putting their own money in.¹

Why “borrow what you can” is better for the whole family

a member’s backtest had a counter-intuitive conclusion: starting the child’s college borrowing back in 2000 (a peak) still left the family’s total assets higher.¹

• The reason is this page’s thesis: borrow what you can, invest what you can, grow the family’s total investment assets, and don’t break the compounding. If you had $1M and borrow $20k for the child to invest, the family’s invested amount becomes $1.02M.
• This is buy-borrow applied to education, echoing “borrowing seed capital beats scrimping on pennies”. What’s truly expensive is time — using the child’s credit to buy several years of investing time; left to compound 20–30 years, “by graduation they could already retire.”

⚠️ Contrast the opening cautionary tale: in the same session James scolded parents “planning to just give each kid $250k and let them spend it” — “money is like a drug; give $250k to a child who can’t control themselves and you’re killing them.” The difference: small annual gifts + index compounding, with a child who already understands investing is the exact opposite of dumping a big cash sum for them to blow. A college fund was never just about money, but about values.²

Answer log

• 2026-07-18 (00574): Student a member (who backtested three options with AI) asked whether to let kids borrow for college and how to fund education. James: borrow what you can, invest what you can; simplest is a PAL, don’t sell stock; if the child is willing, a student loan (deferral = buying investing time); more advanced, open a custodial account early and gift yearly, don’t hand it over before 24/26; look at total family assets, not the single bill.¹

⚠️ This page summarizes James’s spoken views and a student’s backtest at CLEC — not personalized investment, tax, or education-finance advice. Gift-tax limits, student-loan terms, and custodial-account rules vary by country and year; follow current law and professional advice.

Footnotes

1. CLEC James, long-form 00574, “Consumption Is the Mother of the Economy…,” 2026-07-18, a member’s three education-funding options (sell stock / PAL / student loan), custodial-account annual gifting, ownership psychology, 2000-start backtest leaving total assets higher, “what’s truly expensive is time” @2:17:00–2:30:00. Transcript: raw/transcripts/長篇/00574…. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸

2. Same session, opening “young overseas students / don’t just hand over $250k = a drug / the money is the parents’” @00:00–05:30. See 子女是風箏. ↩