Parent loan or liquidate equity

I'd be careful with the parent loan. Just because the market is doing well right now doesn't mean the market could be down 30% in two months. Realistically, over a period of something like 30 years, the fund will average 7.5-8% annualized growth meaning that it sounds like the growth of the fund will be almost equivalent to your interest rate.

One thing I notice that you have completely omitted from your question is what your personal financial situation is. What would a fifty thousand dollar loan at say 7% do to your financial situation?

In the long term, the best thing you can do for your son is to ensure that you are not a financial burden in your retirement years. It's like putting on an oxygen mask before helping others. If you are well-taken care of, he can recover from his fund being used for the cost of education right now. He still has forty years of good working life ahead of him. You don't.

Personally I would double check whether it counts as contribution on the child part or not

I always err on the side of leaving money invested and only taking out money if you have to, especially when someone is young

Once they have 250,000 invested in a long-term index fund, they’re on their way to being able to retire whenever they want or work only where they want. Giving that up seems like something that really takes a lot of thought before you choose to do that.

Have you filled out the sample FAFSA online to see what your expected family contribution is? I might start there.

Hi, growth isn't guaranteed. I like to think of the inverse when considering something like this.

What's best for you and your family if the custodial fund were down 20% this year?

How much would it cost to fund the rest of his education?