To accept federal student loans, you complete three steps in order: review the aid offer from your school, sign the Master Promissory Note and finish entrance counseling on StudentAid.gov, and then formally accept the loan amounts through your school’s financial aid portal. Everything happens across two websites, and most students can finish in an afternoon. Each step has to be done before your school can release any money.
Start With the Aid Offer From Your School
After you file the FAFSA and get admitted, the financial aid office sends an aid offer, sometimes called an award letter. There is no standard format, so every school’s version looks different. Some come by mail; most are posted in the school’s financial aid portal.1Federal Student Aid. How To Evaluate Your Aid Offers
The offer usually lists two federal loan types. Direct Subsidized Loans: the Department of Education covers the interest while you’re enrolled at least half-time, during your grace period, and during any deferment. Direct Unsubsidized Loans: interest starts building the day the money is sent to your school, even while you’re still in class.2Federal Student Aid. Direct Subsidized and Direct Unsubsidized Loans
How Much You Can Accept
The amounts on your offer are bounded by federal annual limits tied to your year in school and dependency status. For first-year undergraduates:
- Dependent students: up to $5,500 total, with no more than $3,500 in subsidized loans.
- Independent students: up to $9,500 total, with no more than $3,500 in subsidized loans.
The ceilings rise in later years. Second-year dependent students can borrow up to $6,500; third-year and beyond, up to $7,500. Independent students can borrow up to $10,500 in year two and $12,500 in year three and beyond. Lifetime caps run $31,000 for dependent undergraduates and $57,500 for independent undergraduates, with no more than $23,000 of either in subsidized loans.3Federal Student Aid. Annual and Aggregate Loan Limits
Your total aid, including loans, grants, scholarships, and work-study, cannot exceed your school’s Cost of Attendance. That number is calculated by the school and covers tuition, books, housing, food, transportation, personal expenses, and, where applicable, dependent care, disability-related expenses, study abroad, and licensing fees.4Federal Student Aid. Cost of Attendance Budget It acts as the ceiling on everything you can receive.
Sign the Master Promissory Note
The Master Promissory Note (MPN) is the legal contract in which you promise to repay your loans, plus interest and fees, to the U.S. Department of Education. You sign it online at StudentAid.gov after logging in with the FSA ID you created when you set up your federal student aid account.5Federal Student Aid. Completing a Master Promissory Note6Federal Student Aid. Creating and Using the FSA ID
The form asks for your personal information and contact details for two references. Both references must have known you for at least three years, live at different addresses, and have different phone numbers. Your loan servicer contacts them only if it loses touch with you during repayment.
Enter your name and identifying details exactly as your school has them on file. Mismatches between the MPN and the school’s enrollment record can delay processing.
One MPN generally covers you for the rest of your undergraduate borrowing at the same school. A signed MPN stays valid for up to ten years as long as at least one disbursement happens within the first twelve months, so you typically don’t have to sign a new one each year.
Complete Entrance Counseling
Federal regulations require every first-time borrower to complete entrance counseling before receiving a Direct Subsidized or Direct Unsubsidized Loan.7eCFR. 34 CFR 685.304 – Counseling Borrowers You do this online at StudentAid.gov, and it takes about 20 to 30 minutes.8Federal Student Aid. Complete Your Federal Student Aid Counseling Requirement
The session walks through how interest accrues, what your estimated monthly payments might look like after graduation, and what happens if you fall behind or default. Comprehension questions appear along the way. When you finish, a completion record is sent electronically to your school. You cannot save partway through. Leave early and you start over.
Accept the Loan Amounts in Your School’s Portal
Once the MPN and entrance counseling are done on the federal site, the last step happens on your school’s financial aid portal. This is where you formally accept, reduce, or decline each loan listed in your offer. You do not have to take the full amount. Most portals let you enter a smaller dollar figure if you want to borrow less.
After you submit your choices, the financial aid office certifies the amounts and sends the final figures to the Department of Education, which starts the funding process. Check that what you accept covers your expected costs for the semester without going past what you actually need. Every dollar you borrow accrues interest and has to be paid back.
If You Declined and Change Your Mind
If you initially decline a loan and later realize you need it, you can generally ask the financial aid office to add it back to your package, as long as you’re still enrolled at least half-time and still meet eligibility rules. Deadlines apply, often around mid-September for fall awards, and availability is not guaranteed. If the school says it’s too late, you’ll usually have to wait until the next academic year.
What You’ll Actually Receive
The number you accept is not the number that lands in your school account. The government deducts an origination fee before the money is sent. For loans first disbursed between October 1, 2025, and September 30, 2026, the fee is 1.057% on Direct Subsidized and Unsubsidized Loans.9Federal Student Aid. FY 26 Sequester-Required Changes to the Title IV Student Aid Programs Accept a $5,500 loan and your school receives about $5,442. You still owe the full $5,500.
The interest rate is fixed for the life of each loan. For loans first disbursed between July 1, 2025, and June 30, 2026, the rate on Direct Subsidized and Unsubsidized Loans for undergraduates is 6.39%, and the rate on Direct Unsubsidized Loans for graduate and professional students is 7.94%.10Federal Student Aid. Interest Rates for Direct Loans First Disbursed Between July 1, 2025 and June 30, 2026
The funds come from the Department of Education to your school, not to you. The school applies them first to tuition, mandatory fees, and on-campus housing charges, and disbursements are usually split into two roughly equal payments, one at the start of each semester or payment period.11eCFR. 34 CFR 668.164 – Disbursing Funds
If you’re a first-time, first-year borrower who has never received a federal student loan before, a 30-day waiting period applies. Your school cannot release the first disbursement until 30 days after the first day of your program. Schools with consistently low default rates may be exempt from this delay.12eCFR. 34 CFR 685.303 – Processing Loan Proceeds
Anything left after tuition, fees, and housing charges is a credit balance and gets refunded to you. The school has to issue that refund within 14 days, usually by direct deposit or check, and you can spend it on books, transportation, and other living costs.11eCFR. 34 CFR 668.164 – Disbursing Funds
Returning Money You Don’t End Up Needing
You are not stuck with money you accepted and then don’t need. Notify your school’s financial aid office in writing with your name, student ID, the loan involved, and the amount. If you return funds within 120 days of the disbursement date, no interest or fees are charged on the returned portion.13Federal Student Aid. Can I Cancel My Student Loan?
After 120 days, the return is treated as a prepayment. Your balance still goes down, but you owe whatever interest and fees accrued in the meantime. Sending back money you don’t need, especially early, is one of the cleanest ways to keep total debt down.
A Note on Parent PLUS Loans
The steps above cover the loans in the student’s name. Direct PLUS Loans for parents of dependent undergraduates run on a separate track: the parent applies, a credit check is run, PLUS Loan Credit Counseling may be required, and a separate MPN is signed by the parent.14Federal Student Aid. Apply for a Direct PLUS Loan as a Parent PLUS loans also carry a higher origination fee, 4.228% for FY2026, and don’t qualify for the in-school interest subsidy, so families generally use subsidized and unsubsidized eligibility first.9Federal Student Aid. FY 26 Sequester-Required Changes to the Title IV Student Aid Programs