Is leveling up mandatory?

In D&D 3.5e, being behind in levels compared to the party grants the relevant characters more experience per encounter. Intuitively, this is because the encounter is relatively harder for them and it works as a catch-up mechanism.

Now, as experience can be spent on other things than gaining levels, the question was raised in my group whether gaining a level is mandatory when the relevant experience treshholds are reached. The implicit idea being that by delaying gaining levels, characters can get a much bigger power boost at once when they actually need it.

One player in particular worked out the math insofar that he could jump from level 12 to 17 while the rest of the party sits at 15.

The arguments make sense, but I am not entirely sure how to handle this idea. Staying behind in level deliberately seems detrimental to the experience of not just the player but also the rest of the group – who will be dragging along effectively dead weight for a while after which said dead weight will outshine all of them.

  1. Is this a legal interpretation of experience and level rules?
  2. Am I wrong in assuming that allowing this would be a bad thing?
  3. How can I encourage players NOT to do this, even if it is by all accounts legal? I still want to allow item crafting and ‘expensive’ spellcasting.