If you filled out a Free Application for Federal Student Aid (FAFSA®), then you should receive financial aid award letters from each school you’ve been accepted to by April.

These offers for federal student aid could include grants, scholarships, work-study and federal student loans. After reviewing your award letter, you may wonder: Should I borrow the full amount of federal student loans I’m offered? Before you can answer that question, here’s what you need to consider.

Learn More About Your Federal Student Loans

In terms of loans available for you to borrow under your name, there are two main types: Direct Unsubsidized Loans and Direct Subsidized Loans. Both of these loans have fixed interest rates, origination fees and in-school deferment. Origination fees are deducted from each loan disbursement, so you’ll ultimately receive less than you borrow. There are also loan limits that range from $5,500 to $12,500, depending on your year in school and dependency status. You can choose to defer payments while enrolled in school at least half-time and there is a six-month grace period. 

In many ways, unsubsidized and subsidized loans are similar, but there are two key differences – financial need and interest: 

  1. Direct Unsubsidized Loans are not based on financial need. With an unsubsidized loan, you are responsible for paying the interest that accrues while you’re in school. 
  2. Direct Subsidized Loans are based on financial need, which is determined by your family’s income and other factors reported through the FAFSA. The government pays the interest that accrues while you’re in school and during your grace period, which helps reduce the total amount you have to pay back. 

Federal student loans typically have lower fixed interest rates than other types of fixed rate loans and there is more flexibility with paying them back due to multiple repayment options, according to Frances Kweller of Kweller Prep. Repayment plans range from 10 to 25 years, and there are income-driven plans exclusive to federal student loans. 

There is also a Direct PLUS Loan that’s available to your parents if they want to help pay for your college education. To be eligible for these loans, your parents have to fill out an application at StudentLoans.gov in addition to the FAFSA. They can find more information about loan terms at StudentAid.gov

Figure Out How Much You Need

Now that you know more about the student loans in your award letter, it’s time to figure out if you need to borrow to cover your college costs.

  1. Start by creating a budget of your projected expenses. Your financial aid award letter is a good place to start as it outlines several of the big ticket items of going to college: tuition, fees, housing and meal plans. 
  2. Next, figure out what other expenses you need to cover. There are many costs that aren’t included in your award letter, like your phone bill, eating outside of the dining halls, ride shares, toiletries and anything else you may need to purchase. While student loans, both federal and private, can only be used for school-certified costs like tuition, travel and supplies, it’s important to get a realistic sense of all of the contributing factors to your college budget when making borrowing decisions. 
  3. Once you have a list, you should total up any other sources you have to pay for college that are not included in your award letter. These could be outside scholarships, grants, money your parents are willing to contribute and gifts from family and friends. 
  4. Calculate the difference between your expenses and what money you have available to pay for college. 
  5. If you still have a balance, then consider accepting all or some of the federal student loans in your award letter to cover your school-certified costs.  

Accept Your Financial Aid

It’s important to know that you’re under no obligation to accept all the federal student loan money made available to you. You can accept all, some or none of the federal student loans you’re offered. 

Your award letter may also include scholarships or grants, which is genuinely free money you never have to pay back. Try to use as much free money as you can before you borrow. Just remember to check the terms to ensure you can fulfill any requirements. 

Return Unused Student Loans

If you accept more federal student loan money than you end up needing, the good news is you can return it without penalty. You have 120 days from disbursement to return surplus funds without paying interest. After that, you will owe accrued interest for your Direct Unsubsidized Loans, but it’s still worth returning the money if you’re not going to use it. The sooner you send it back, the lower your overall loan cost.

Deciding how much to accept in federal student loans depends on your personal financial situation and may vary year to year. Like any loan, federal student loans must be repaid, so taking time to determine your costs and borrowing only what you need will help keep your overall loan debt more manageable. 

FAFSA is a registered trademark of the US Department of Education and is not affiliated with Discover Student Loans.