when you apply for federal financial aid you have the option for applying for varying amounts of money. people who aren't commuting from home generally take out the max stafford, and then some take out an additional grad plus loan.
the school will receive that money, and then they will deduct whatever mandatory expenses first (tuition, university housing, insurance, random fees, etc) and then after that, whatever remaining amount you have will be given to you as a check. you are free to do whatever you want with that money.