More college options to consider ... and a few to avoid

When it comes to finding money to help pay for college, focus first on scholarships, grants and federal student loans.

But where should families look if they need to come up with more money to cover financing gaps?

Traditional options abound, ranging from federal PLUS loans for parents, taking out a loan from private lenders or tapping retirement accounts, home equity lines of credit, and the cash value on life insurance policies.

Some families even opt for crowdfunding drives aimed at friends and family, through platforms like GoFundMe. Others try some truly unorthodox methods that are not only risky but downright foolish, such as participating in medical clinical trials, selling organs, and contesting for prize money in online trivia contests such as Givling (www.givling.com).

While it may seem that desperate times require desperate measures, be careful. And consider this wake-up call: If you find yourself needing to borrow or to try other approaches to raise money, it’s a signal that you may be over-borrowing and tethered financially to a college you can’t afford.

Here are the pros and cons for some college financing options.

*When families have exhausted federal student loans, many turn to federal PLUS loans. These are made in the parents’ names and are available to families of any income level after passing a credit check.

However, PLUS loans carry an origination fee, currently at 4.23%, and a fixed interest rate of 5.30% for loans disbursed before July 1.

Borrowers do have the option of deferring payments while the student is in school, although interest accrues.

*Parents with good credit records may find they can pay less on a private loan from a bank, credit union or other financial institution, said Joe DePaulo, CEO of College Ave Student Loans. Lenders also might waive origination fees.

To compare interest rates and terms, go to Bankrate.com (www.bankrate.com) and NerdWallet.com. (www.nerdwallet.com.)

With both private and PLUS loans, the debt belongs solely to the parent “so make sure you can afford to take on extra debt and have a plan to pay it off,” DePaulo said.

Also note that parents generally must start paying back private loans right away. Another significant negative of taking out a private loan is if you “ever fall into financial trouble, repayment plans are quite limited,” said Lindsay Clark, director of external affairs at Savi, a student loan company.

Some lenders offer private student loans, though a parent will likely need to co-sign. But unlike federal student loans, private loans do not offer loan forgiveness or income-driven repayment plans.

*Considering borrowing from the cash value of a life insurance policy, tapping a 401(k), or taking out a home-equity loan? It’s best to consult with a financial expert to assess your family’s financial situation before going down these paths.

But as a general rule of thumb, don’t sacrifice retirement savings. And, if you default on a home-equity loan, you can lose the home.

When it comes to some of the more unorthodox methods of fundraising, it’’s probably best to manage expectations and proceed with caution.