Guide to Low-Income Student Loans

By Melissa Brock · March 09, 2022 · 7 minute read

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Guide to Low-Income Student Loans

As a low-income student, figuring out how to attend college can seem like a grueling process. It’s not even unheard of for college students to face insecurity with their housing situation. A study published in 2021 found that of students surveyed across 22 schools, 44.1% were classified as food insecure, while 52.3% were experiencing housing insecurity.

There’s no question about it: Student loans can help low-income students attend college. In this piece, we’ll walk through the definition of student loans and answer the all-important question, “Can you get student loans with low income?” This article will also go over the financial aid options available to you if you qualify as a low-income student and how to apply for student loans.

What Are Student Loans?

Student loans are an often used option to help pay for college. During the 2019-2020 school year, approximately 43% of first-time, full-time degree/certificate-seeking undergraduate students were awarded federal student loans, according to data from the National Center for Education Statistics (NCES).

Students can borrow to pay for the costs of college. Student loans can be used to pay for tuition, room and board, and other fees, as well as other associated costs of college like books and rent.

Students can use either federal or private student loans to pay for college. Students who take out federal student loans borrow money from the government, through the U.S. Department of Education. Federal student loans typically offer low, fixed interest rates and other benefits, such as income-driven repayment plans and other types of forgiveness options not available with private student loans.

Students who get private student loans can get them from banks, credit unions, and other private lenders. Private lenders set their own interest rates and conditions for private student loans. Students interested in borrowing private student loans must qualify by filling out a loan application and disclosing personal finance factors like their credit score. Keep in mind that because private student loans lack the same borrower protections that federal student loans have, they are generally considered only after students have depleted all other sources of funding.

Many private student loans require a cosigner for borrowers who don’t have a well-established credit history. A cosigner is someone who agrees to pay back the loan if the primary borrower cannot.

Recommended: A Guide to Private Student Loans

Can You Get Student Loans With Low Income?

Yes, you can get student loans if you have a low income. If you can’t cover the full cost of college with scholarships and grants (which you don’t have to pay back), student loans can help you take care of the remaining costs of college.

You can access federal student loans no matter your income level, but you do need to meet specific qualifications. You must:

•   Demonstrate financial need (for the majority of federal aid programs).

•   Be a U.S. citizen or eligible noncitizen of the U.S.

•   Enroll in an eligible degree or certificate program at a college or career school.

Learn more about eligibility requirements for federal student loans and other federal student aid.

Can you get private student loans with low income? Yes, it may be possible to qualify for a private student loan even if you’re unemployed or have a less-than-stellar credit history.

In the next two sections, we’ll go over your specific financial aid options and how to apply for student loans.

Recommended: Finding Free Money for College

Low-Income Financial Aid Options

People pay for college in many different ways and use various methods to pay for it. For example, some students get more scholarship money than others and use that to pay for the bulk of their college costs. Other students take out more loans to pay for the costs of college. Paying for college usually looks like a puzzle — all the pieces fit together in different ways to make everything “fit.”

Let’s walk through four compelling ways to pay for college for low-income students: through the FAFSA®, the federal Pell Grant, scholarships for low-income students, and student loans for low-income families.

FAFSA

Every student (whether they’re low-income students or not!) can file the Free Application for Federal Student Aid (FAFSA). The FAFSA is the free form you can fill out to apply for financial aid for undergraduate or graduate school. Since people use many different ways to pay for college, applying for FAFSA helps kick off that process.

In conjunction with the school you plan to attend, the FAFSA determines your eligibility for need-based and non-need-based federal financial aid for college based on your financial situation. The FAFSA results determine the amounts you receive for federal grants, scholarships, work-study, and/or federal student loans. We’ll discuss scholarships and loans in the next sections, but here’s a quick overview of federal grants and work-study:

•   Federal grants: Students who demonstrate financial need may qualify for federal grants, which you do not need to pay back. Some examples of federal grants include Federal Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), Iraq and Afghanistan Service Grants, and Teacher Education Assistance for College and Higher Education (TEACH) Grants. Each grant has its own eligibility requirements. Some, like the TEACH Grant, even have requirements you must fulfill after you attend school. Look at each grant’s eligibility requirements to determine whether you qualify.

•   Work-study: Colleges and universities offer part-time work-study opportunities through the Federal Work-Study program. Graduate and undergraduate students who demonstrate financial need can get it whether they are part- or full-time students, as long as your school participates in the Federal Work-Study Program.

How Do You File the FAFSA?

On or after October 1 prior to the year you attend school, you or a parent can file the FAFSA. If you need help filing the FAFSA, the financial aid office of the school you’re considering can help you. Otherwise, state organizations that provide career and college planning services (like ICAN in Iowa ) can help you file the FAFSA. Here’s a general overview of the steps required in filling out the FAFSA.

1.    Create your Federal Student Aid ID, also called an FSA ID. You can do this in advance of getting your materials ready and filing the FAFSA.

2.    Next, make a list of schools you’d like to attend. You can add up to 10 schools on the FAFSA. Once you receive your Student Aid Report (SAR) after you file, you can send your information to more than 10 colleges.

3.    Gather financial documents you’ll need. You’ll need information for both yourself and your parents, such as your Social Security number, Alien Registration number (if you’re not a U.S. citizen), federal income tax returns, W-2s, and other records of earnings, bank statements, and investments as well as records of untaxed income.

4.    Submit the FAFSA. Using your FSA ID, log in to the website, read the directions, and submit your information.

5.    Review your SAR to make sure your FAFSA information looks correct. Your SAR will include your Expected Family Contribution (EFC). Colleges and universities receive your SAR and use your EFC to determine your eligibility for federal and nonfederal student aid.

Recommended: 31+ Facts About FAFSA for Parents

Federal Pell Grant

Your EFC will determine your eligibility for a Federal Pell Grant, so you have to file the FAFSA in order to qualify for a Pell Grant.

Undergraduate students who qualify for a Federal Pell Grant must show exceptional financial need. They are usually reserved only for undergraduate students, though some students enrolled in a postbaccalaureate teacher certification program might qualify.

Note that you cannot receive a Federal Pell Grant if you are incarcerated or committed a sexual offense.

How much can you receive from a Pell Grant? The amount varies, depending on your EFC, the cost of attendance of your school, whether you are a part-time or full-time student, and whether you will attend for a full academic year or not. The maximum Federal Pell Grant award is $6,495 from July 1, 2021, to June 30, 2022.

Scholarships for Low-Income Students

Colleges and universities may offer need-based scholarships. The money is yours to use for education — you do not need to pay it back. The results of the FAFSA help colleges and universities determine your eligibility for need-based scholarships and scholarships for low-income students. You can also find need-based scholarships through employers, individuals, private companies, nonprofit organizations, religious groups, and professional and/or social organizations.

Recommended: Scholarships and Grants to Pay Off Student Loans

Student Loans for Low-Income Families

As mentioned above, you can tap into either federal or private student loans for low-income students. Let’s walk through the federal student loans available first among low-income financial aid options.

Federal Student Loans

Based on the results of the FAFSA, you may qualify for a few types of federal student loans. The U.S. Department of Education serves as your lender through the William D. Ford Federal Direct Loan (Direct Loan) Program. However, two of these types of loans aren’t awarded based on need — the Direct Unsubsidized Loans and Direct PLUS Loans . Anyone can generally get these (as long as you qualify in other ways not related to need).

Here’s a quick overview of three main types of federal loans:

•   Direct Unsubsidized Loans can go to undergraduate, graduate, and professional students, but you must pay the interest while you’re in school.

•   Direct Subsidized Loans are for undergraduate students who demonstrate financial need. The government pays the interest on these loans while you’re in school.

The amount you can get differs for both Direct Unsubsidized Loans and Direct Subsidized Loans, depending on your year in school. For example, a first-year undergraduate student may qualify for a maximum of $5,500 in federal student loans, and of that, only $3,500 could be subsidized loans.

•   Graduate or professional students or parents of undergraduate students can get a Direct Plus Loan. Borrowers must undergo a credit check and may need to meet additional requirements to qualify.

Recommended: Private Student Loans vs Federal Student Loans

Private Student Loans

Federal student loans don’t fully cover the cost of attendance for many students, and some students may consider tapping into private student loans as well.

Private lenders do set their own requirements, and some students may find it challenging to qualify for a private loan if they have:

•   Little to no income

•   Negative credit history

•   A bankruptcy on file

•   A low credit score

How do you get around these issues? You may need to get a job while in school to prove you have some income. You may also want to improve your credit. To do this, consider making payments on time, catching up on past-due accounts, and reducing your credit inquiries (don’t sign up for new credit cards, for example.) These are all factors that can potentially influence your credit score. Keep in mind that you can still qualify with low income and low credit — however, you may make up for it by paying more in interest.

You might not have the credit history to qualify for a student loan in the first place, but you can strengthen your case by applying with a creditworthy cosigner whom you trust since you both share repayment responsibilities. Many borrowers turn to a family member for cosigning.

How to Apply for Student Loans

How to apply for student loans will differ depending on whether you are interested in federal or private student loans.

To apply for federal student loans, as mentioned, the first step is to fill out the FAFSA. Once you’ve filed the FAFSA, you basically sit back and wait to see what the school you’re planning to attend will offer you in federal aid through your financial aid award. However, it’s up to you to know and have researched all the implications of the federal aid in your aid award, including interest rates, fees, and repayment schedules.

Applying for private student loans involves directly going to a lender website or simply talking to your college or university’s financial aid office. Many institutions put together what they call “preferred lenders.”

Even if your school makes it easy for you to apply for a private student loan, do your research outside of the preferred lender list to find low-interest rates and the right interest rate types (fixed or variable), repayment schedules, and fees. You want to find the terms and conditions that fit your needs.

As you are reviewing the private student loan application process, you’ll likely need to do the following, make sure you:

•   Meet the requirements to receive a private student loan.

•   Attend a school that accepts private student loans.

•   Choose your cosigner (if applying with one).

•   Give your private loan lender all the information they need.

Recommended: SoFi FAFSA Guide

The Takeaway

If you take one thing from this article, know this: Even if you’re a low-income student, student loans for low-income families are available. You don’t have to go through the process alone, either. Reach out to a parent or guardian or the financial aid office of the institution you plan to attend. They may be able to help you determine how to take out federal and private student loans.

If you’re thinking of borrowing a private student loan, consider SoFi. Colleges offering free tuition are few and far between, so let SoFi help you get there. Check out SoFi’s no-fee private student loan options and learn more about student loans for low-income students.

FAQ

What qualifies as a low-income student?

The U.S. Department of Education defines low-income students as an individual whose family’s taxable income for the preceding year did not exceed 150% of the poverty level amount. The Census Bureau sets the income levels for determining poverty status based on certain factors, such as your state and the size of your family unit.

Do low-income students get free college?

While there are colleges that offer free tuition, it’s important to recognize that colleges don’t offer free tuition to every student. Low-income students can pay for college through a combination of scholarships, grants, and loans.

Does FAFSA help low-income students?

Yes. The Free Application for Federal Student Aid helps students who demonstrate financial need through a combination of federal and state financial aid. The results of the FAFSA helps institutions determine how much you can receive in college scholarships, grants, and work-study.


Photo credit: iStock/Souda

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