|System Reference Document v3.5|
Once the total of a character's class levels (not including any Hit Dice from his creature type or his level adjustment) reaches three times his level adjustment, his level adjustment is eligible to be decreased by 1.
For instance, a gnoll's level adjustment is +1. When a gnoll character gains his third class level (remember, the gnoll's 2 starting Hit Dice don't count), he can pay an XP cost to reduce his level adjustment to +0.
If the level adjustment is greater than +1, this process repeats until the creature's level adjustment reaches +0. Each time, use the creature's current level adjustment to determine the point at which the level adjustment can go down by 1. For example, a drow (level adjustment +2) may drop to level adjustment +1 after gaining her sixth class level, and then to +0 after gaining an additional three class levels.
Table: Reducing Level Adjustments gives the levels at which level adjustments are eligible to be reduced for starting level adjustments of +1 to +6. Creatures with a level adjustment of +7 or more retain their full normal level adjustment until reaching epic levels (21st level or higher), and thus aren't included on the table. However, you can follow the pattern described above to determine when such creatures' level adjustments can be decreased.
For instance, a 2nd-level gnoll fighter (ECL 5) who later gains a third class level has a minimum of 15,000 XP (his ECL has just gone from 5 to 6). He is eligible to reduce his level adjustment from +1 to +0. He must pay 5,000 XP, since his ECL is now 6 (2 Hit Dice plus 3 class levels plus his +1 level adjustment). After he pays the XP, his level adjustment decreases by 1 to +0. He now has 10,000 XP. His ECL falls to 5 (2 Hit Dice plus 3 class levels). Even if the XP payment would not reduce him to 5th level—for instance, if his XP total after reaching 6th level were 20,000 or more—his XP total can't remain above the maximum for 5th level, which is 10,000. Effectively, the gnoll has "paid off" his level adjustment with an XP cost, and he is now a 5th-level character.
Similarly, a drow cleric who has just reached 6th level (ECL 8) is eligible to reduce her level adjustment from +2 to +1. She must pay 7,000 XP, and her ECL becomes 7 (6 class levels plus her +1 level adjustment). When she gains her 9th class level (ECL 10), she can reduce her level adjustment to +0 (and her ECL to 9) by paying another 9,000 XP.
On the surface, this tradeoff may look like a bad deal. The drow cleric has now sacrificed 16,000 experience points, putting her behind her comrades in total class levels. Now, however, she progresses as if she had never had a level adjustment. With the self-correcting nature of the experience point system, she will soon catch up to the rest of her party, and will reach 20th level after earning a total of 206,000 XP (190,000 plus the 16,000 in XP costs). If she had not used this variant system, she would have had to amass 231,000 XP to reach her 20th class level (which is ECL 22 for a normal drow with a +2 level adjustment).