Student Loans for Low-Income Students: How To Pay for College

College can increase annual and lifetime earnings, but covering tuition and living expenses can be a challenge for low-income students.

There are plenty of options to pay for school that don’t require paying cash out of pocket, including student loans and even more attractive alternatives like grants and work-study jobs, which can be a big help to students with limited financial resources.

If you don't have much income and want to explore ways to pay for school, this guide explains different financial aid options that you could take advantage of.

Current private student loan rates

What student loan options are available for low-income students?

Low-income students can access federal and private student loans to pay for college.

Federal loans come from the Department of Education, and most don’t require a credit check. Some federal loans are awarded based on financial need, while others are available to all students regardless of income.

Private student loans are offered by banks, credit unions, and online lenders. Most private loans have credit and income requirements, either directly or through a cosigner, and may be harder to qualify for than federal loans.

“Federal student loans are low-income borrowers’ best funding option because eligibility is not tied to credit history, they come with fixed interest rates, and they unlock access to essential safety nets, such as income-driven repayment and deferment options,” says Bethany Hubert, college lending and financial aid specialist at Earnest.

Federal aid for low-income borrowers

While some types of federal aid are open to all students, there are certain options specifically designed to help low-income students. Here are some specific types of federal aid designed for students with limited means.

• Direct Subsidized Loans: These loans are available to undergraduate students with financial need. They don't accrue interest while you’re in school, so you graduate with a lower loan balance than you would with an unsubsidized loan.
• Pell Grants: The federal government awards these grants to undergraduate students who have exceptional financial need. These grants don’t have to be repaid, and you can receive one for each year that you’re in school (up to six years).
• Federal Work Study: Both undergraduate and graduate students with financial need may qualify for work study, which provides part-time employment to help them earn extra money for school. Work study income doesn’t have to be repaid, but does have to be earned through employment.
• Federal Supplemental Educational Opportunity Grant (FSEOG): This program offers grants to undergraduate students with exceptional financial need. Grants are administered by the financial aid offices at each participating school.
• Income-driven repayment: Once you graduate, you can sign up for an income-driven repayment plan, which adjusts your monthly loan payments based on your income. Your payments will be limited to a certain percentage of your discretionary income. Very low-income borrowers could pay as little as $0 per month.

Private student loans for low-income students

Low-income students may also want to turn to private student loans if federal loans don't go far enough. 

“Some students might still have a gap after exhausting their annual borrowing limit for federal loans,” says Angela Colatriano, chief operating officer of College Ave. “For example, a student can typically borrow up to $5,500 in federal loans in their freshman year. For students who still have a gap to cover after exhausting federal aid and other need or merit-based grants and scholarships, private student loans can help cover the remaining cost.”

Private lenders generally require a sufficient and stable income to qualify for loans. They also require a credit check to ensure you’re a responsible borrower. Unfortunately, many low-income students won’t meet these requirements on their own, especially fresh out of high school. However, you can apply with a cosigner who meets the income and credit requirements.

While private loans can be an excellent supplement to federal loans, it’s also important to minimize your borrowing so you don’t overburden yourself after graduation. Colatriano recommends analyzing your financial situation to understand how much you feel comfortable borrowing. 

“For students planning to borrow, be sure to understand what repayment will look like after graduation,” says Colatriano. “A helpful guideline is to borrow less in total than what you expect to earn in your first year after graduation. By doing so, you can typically be on track to pay off your loans in around 10 years.”

How to qualify for financial aid as a low-income student

The first step to qualifying for any federal financial aid is to complete the Free Application for Federal Student Aid (FAFSA). You’ll have to submit this for each academic year. The FAFSA requires you to provide basic income and asset information about your family. You'll also need to authorize access to your tax records.

Income limits for each need-based aid program vary, and the information you provide in your FAFSA will determine your eligibility.

Your eligibility will also vary depending on your dependency status. Most students under age 24 are considered dependent students unless there are extenuating circumstances. However, if you do qualify as an independent student, you should qualify for even more federal aid.

Additional resources for low-income students

In addition to federal financial aid and private loans, there are plenty of other resources you can use to pay for school if you’re living on a low income. 

“Low-income students should aggressively apply for external scholarships and grants from nonprofits, local organizations, and their colleges, especially departmental or program-specific awards, which often have less competition than national scholarships,” says Hubert.

Many scholarships are merit-based, but grants are often need-based, meaning you may have an easier time qualifying with a low income. Start researching your options as early as possible to give yourself plenty of time to apply.

Finally, if you want to minimize the amount of loans you’re taking out but don’t qualify for enough scholarships and grants to cover your costs, consider attending school part-time so you can work. You could also opt for a more affordable community college, especially in the first couple of years of schooling.