To accept federal student loans, you sign the Master Promissory Note and finish entrance counseling at StudentAid.gov, then go into your school’s financial aid portal and formally accept, reduce, or decline each loan listed in your aid offer. All three steps have to be done before your school can release any money, and most students finish them in a single afternoon.
Review Your Aid Offer First
Your school sends an aid offer (sometimes called an award letter) after you file the FAFSA and are admitted. There is no standard format, so every school’s version looks a little different, and most arrive through the school’s financial aid portal rather than by mail.1Federal Student Aid. How To Evaluate Your Aid Offers
The offer will typically list two kinds of federal loans. With a Direct Subsidized Loan, the Department of Education pays the interest while you are enrolled at least half-time, during your grace period, and during any deferment. With a Direct Unsubsidized Loan, interest starts building the day the money is sent to your school, including while you are still in classes.2Federal Student Aid. Direct Subsidized and Direct Unsubsidized Loans If you have room to accept one and not the other, the subsidized loan is the cheaper money.
How much you are allowed to borrow depends on your year in school and whether you are a dependent or independent student. First-year dependent undergraduates can borrow up to $5,500 total, with no more than $3,500 of that in subsidized loans. First-year independent undergraduates can borrow up to $9,500 total, again with no more than $3,500 subsidized.3Federal Student Aid. Annual and Aggregate Loan Limits The caps rise in later years.
Your total aid, loans and grants and scholarships and work-study together, cannot exceed your school’s Cost of Attendance. The COA includes tuition and fees plus estimated costs for books, housing, food, transportation, and personal expenses, and can also include dependent care, disability-related expenses, study-abroad costs, and licensing fees where they apply.4Federal Student Aid. Cost of Attendance Budget That number is the ceiling for everything you can receive.
Before you accept anything, know the interest rate. For loans first disbursed between July 1, 2025 and June 30, 2026, Direct Subsidized and Unsubsidized Loans to undergraduates carry a fixed rate of 6.39%, and Direct Unsubsidized Loans to graduate and professional students carry 7.94%.5Federal Student Aid. Interest Rates for Direct Loans First Disbursed Between July 1, 2025 and June 30, 2026 The rate is locked for the life of each loan.
Sign the Master Promissory Note
The Master Promissory Note (MPN) is the legal contract where you promise to repay your loans, with interest and fees, to the U.S. Department of Education.6Federal Student Aid. Completing a Master Promissory Note You complete it online at StudentAid.gov by logging in with the FSA ID (username and password) you created when you first set up your federal student aid account.7Federal Student Aid. Creating and Using the FSA ID
The form asks for your personal information and contact details for two references who have known you for at least three years. The two references must live at different addresses and cannot share a phone number. Your loan servicer only reaches out to them if it loses contact with you during repayment.
Make sure the name and identifying details you enter match what your school has on file. Mismatches between the MPN and your enrollment record will delay processing.
You usually only sign the MPN once. A signed MPN stays valid for up to ten years, as long as at least one disbursement is made within the first twelve months, so it typically covers all of your subsequent Direct Loans at the same school without a new signature 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.8eCFR. 34 CFR 685.304 – Counseling Borrowers You do it online at StudentAid.gov, and it takes about 20 to 30 minutes.9Federal Student Aid. Complete Your Federal Student Aid Counseling Requirement
The session covers how interest accrues, what estimated monthly payments after graduation might look like, and what happens if you fall behind or default. You answer comprehension questions as you go. When you finish, a completion record is sent electronically to your school. You cannot save a partially finished session, so set aside enough time to complete it in one sitting.
Accept the Amount Through Your School’s Portal
After the MPN and counseling are done on the federal site, the actual acceptance happens on your school’s financial aid portal. This is where you formally accept, reduce, or decline each loan listed in your aid offer.
You are not required to take the full amount offered. Most portals let you enter a lower dollar figure if you want to borrow less, and borrowing less is almost always the right call if your other aid and savings will cover the gap. Every dollar you accept accrues interest and must be repaid.
Once you submit your choices, the financial aid office certifies the amounts and sends the final figures to the Department of Education to begin funding.
What You’ll Actually Receive, and When
The amount that reaches your school is slightly less than the amount you accept, because the government deducts an origination fee from each disbursement. For loans first disbursed between October 1, 2025 and September 30, 2026, the fee is 1.057% on Direct Subsidized and Unsubsidized Loans.10Federal Student Aid. FY 26 Sequester-Required Changes to the Title IV Student Aid Programs On a $5,500 loan, you receive about $5,442 but still owe the full $5,500.
Your school receives the money from the Department of Education and first applies it to tuition, mandatory fees, and on-campus housing. Funds 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 are a first-time, first-year borrower who has never had a federal student loan before, there is a 30-day waiting period: your school cannot release the first disbursement until 30 days after the first day of your program.12eCFR. 34 CFR 685.303 – Processing Loan Proceeds Schools with consistently low default rates may be exempt.
If your loan is bigger than what you owe the school for tuition and fees, the leftover (a credit balance) is refunded to you. The school must issue the refund within 14 days.11eCFR. 34 CFR 668.164 – Disbursing Funds It usually arrives as a direct deposit or a check and is intended for books, transportation, and other living expenses.
If You Change Your Mind
If you declined a loan and later realize you need it, contact your school’s financial aid office. They can generally add the loan back to your package, as long as you are still enrolled at least half-time and still meet eligibility. There are often deadlines, frequently around mid-September for fall awards, and availability is not guaranteed. If the school says it is too late, you typically have to wait until the next academic year.
If you already received the money and decide you do not need some or all of it, you can return it. Notify your school’s financial aid office in writing with your name, student ID, the loan involved, and the amount you want to cancel. If you return the money within 120 days of the disbursement date, you will not be charged any interest or fees on the portion returned.13Federal Student Aid. Can I Cancel My Student Loan? After 120 days, a return is treated as a prepayment: it still reduces your balance, but any interest and fees that accrued stay on the loan.