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

Liquidate assets (sell stock for tuition) — worst: it breaks the compounding, killing the goose that lays golden eggs.
Pay tuition with a PAL — uses your own credit line, doesn’t sell stock, keeps assets invested. Simplest, not bad.
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

Should you fund an education account (529 / HSA / Canadian RESP)? — No

“How do I prepare an education fund” came up repeatedly in 2021–2024, and almost always in the form “everyone’s saving into a 529, should I too?” James’s answer has always been no (or only a token amount), for the flip side of this page’s main theme: a designated-use account forces you to spend down your own assets.

It forces you to spend your principal. “Putting money in an HSA or a 529 is being forced to spend your own assets … once it goes in it’s not your money — so how would your assets ever grow if you’re saving into something that isn’t yours?”³
The tax break is fake; the real beneficiary is the financial industry. “Some of these government ‘benevolent policies’ were suggested by the financial industry so they can get their hands on your money … isn’t the industry earning fees? Earning your management fees?”³
The return hurdle: if you really want one, “a 529 is only worth funding if its return is at least as good as SPY,” otherwise “you saved on tax but lost the watermelon for a sesame seed.” And you don’t know whether your child will even attend college; early withdrawal carries penalties and tax (its nature is close to a traditional IRA — and James consistently argues not to fund traditional).⁴
The fix was already fully stated in 2024: “Keep it in your brokerage account; when your child goes to college you should borrow via Pledge to pay, not spend your own assets. Or have them take a student loan first and later borrow via Pledge to pay it off. Never spend your own assets.”⁴
James’s own regret: “My daughter’s account was originally saved up to give her for college — later I thought, no need — why spend my own money? Back then I didn’t know how to borrow.” “If I’d known, I would never have spent a cent of my assets — I’d have borrowed for everything.”⁴³
The Canadian RESP (government-matched education fund) gets asked the same way, and James applies the same frame: first ask what the account can invest in and whether the return is enough, then ask whether it’s just another designated-use cage.³

So the custodial account + annual gifting in this page and 529/RESP are opposites: the former is your gift compounding freely in the child’s name; the latter is your money locked to tuition only.

Answer log

2024-11-02 (00490): Don’t fund either a 529 or an HSA — a designated-use account means being forced to spend down your own assets, and the real winner is the fee-collecting financial industry; when the child studies, pledge-borrow against your own brokerage account. The same session also covers the Canadian RESP framing.³
2024-04-20 (00464): A member asked “my kids are close to college, everyone is saving into a 529 — how much should I save, is it worth it?” → not really necessary; if you do, keep it small and only if the return ≥ SPY. The fix is to keep the money in a brokerage account and borrow via Pledge when tuition is due, or let the child take a student loan and repay it later via Pledge. This page’s “don’t sell, borrow instead” core was already fully formed here, more than two years before 00574. Also from the same session: tell the child plainly “I’ll give you $100k, you pick the school,” and the rest is on them.⁴
2021-11-09 (00269): The earliest instance of this question. “Your child going to college should be paid by borrowing, not by selling stock”; “you can borrow for your child’s college later and keep your own money invested”; “don’t chase the tax break or the government match … things like a 529 that must be spent on education — don’t fund them.” Also a member asking whether a 529 returning 13.8% should be moved into a custodial account to buy QQQ (gains can’t move without penalty and tax; move the principal if you can).⁵

🔎 This question has been asked at least four times in five years (00269 → 00464 → 00490 → 00574), and the core answer hasn’t changed since 2021: don’t sell stock, borrow instead (PAL or student loan), and never spend your own assets. What 00574 added was only the AI-backtested quantitative support, plus the custodial-account handover timing and ownership psychology.

Follow-up: what if the child doesn’t want a student loan?

This page’s answer above is “ask the child how they feel first, don’t force a loan on them” (00574). In 2021, 00269 gave the other side, in a much harder tone — a member said their child’s classmates all say “I don’t want to borrow”:⁵

James: “Then don’t go to college. What kind of attitude is that? You must not let them have that attitude.”
But the accompanying move is for the parent to say it plainly: “I’ll pay your loan back later, but right now you go take the student loan.” — it isn’t dumping debt on the child, it’s using their credit to buy investing time, with the parent clear about who ultimately pays.

The two answers don’t conflict: mechanically it’s always the loan route; whether you tell the child “we’ll cover it in the end” is the part that flexes with their temperament.

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.

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
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. ↩
CLEC James, 長篇 00490 “Workers are just picking up trash; a mortgage in retirement is a risk”, 2024-11-02, don’t fund 529/HSA @1:01:30–1:05:00 (“putting money in an HSA or a 529 is being forced to spend your own assets”); Canadian education-fund question @2:26:00. Transcript in raw/transcripts/長篇/00490…. ↩ ↩² ↩³ ↩⁴ ↩⁵
CLEC James, 長篇 00464 “The highest guiding principle of asset allocation: save tax, be richer”, 2024-04-20, whether to fund a 529 and pledge-borrowing for college @2:14:00–2:18:30 (“you should borrow via Pledge to pay for it, not use your own assets”, “never spend your own assets”); “I’ll give you $100k, pick your own school” @1:55:00. Transcript in raw/transcripts/長篇/00464…. 529 rules (withdrawal age, penalty, tax character) are James’s spoken understanding at the time, not tax advice — verify against current law. ↩ ↩² ↩³ ↩⁴
CLEC James, 長篇 00269 “clubhouse casual investing chat”, 2021-11-09, “it should be paid by borrowing, not by selling stock” @25:00; the child who doesn’t want a student loan @27:30–28:00; moving a 529 to a custodial account @1:01:00–1:02:00. Transcript in raw/transcripts/長篇/00269…. ↩ ↩²