If you can I would present both in a good light. Ideally if you can show him the difference between the material he would be doing in the 7/8th and the Algebra I class. I would present somewhere between your two options. Suggesting that you feel he would be happier in Algebra but it would take work and commitment on his part. Given that he has been unhappy in math and wanting more challenging work, I suspect he will be a fairly good judge. Although you might also have to read between the lines. While I feel asking him is important, at the end run you are the parent and hopefully has a better idea as to how motivated he really is.