City College Manchester, which has a site in Moss Side, is expecting 1,500 students to benefit from the #163;10-a-week payments, designed to cover travel expenses.
The #163;1.9 million from the European Social Fund will also pay parents #163;50 a week towards childcare.The grants will apply to around 40 courses at the inner-city college, as part of a successful bid to provide training for the jobless.
The scheme is also being used in the annual battle for students. City College principal Dave Gibson said: "Thanks to the efforts of our pro-active funding unit, a student who comes to City College rather than one of our competitors will be #163;120 better off in the first term."
Controversy has surrounded the practice of offering so-called golden hellos under which some colleges offer cash inducements for students to enrol or complete courses.
But Jackie Etchells, manager of the college's funding unit, said pilots had shown the scheme would cut drop-out rates and encourage unemployed people into training.
She said: "We recognised that one of the main barriers to participation in our client group was financial hardship.
"Students simply do not have the cash to attend college and it's a barrier to them taking up training to get back into work.
"We know from our own studies that students start a course and encounter difficulties which means they cannot continue."
The college ran two pilot projects last year before winning the bid for this year's scheme, said to be the largest of its kind in the north of England.
Pilots included a course for jobless graduates needing computer skills and a watchmaking course for unemployed people. On both pilots drop-out rates fell to zero.
Under this year's ESF programme, unemployed students will be offered places on one of around 40 courses specially designed to give them vocational training and job-seeking skills.
In return they will be offered grants for travel expenses, paid on top of their benefits.
Ms Etchells said: "We are an inner-city college with a high percentage of single parents and a high percentage of unemployed people in our catchment area. We know that small things make a big difference to people on low incomes."
The scheme follows calls for action to widen access funds in colleges to support students from poor backgrounds. Barrister Helena Kennedy called for such schemes to be extended in her report on widening participation in further education, a theme echoed in Sir Ron Dearing's report on higher education.
A DFEE spokesman said: "City College Manchester is among the most successful applicants for European funding in the North West. It consistently puts forward a wide range of good quality, innovative projects and plays a significant role in meeting the kind of targets identified by the Government."