Can I transfer my Direction Subsidized and Unsub loans to a different school?

If you don't attend College #1, you won't receive any Stafford funds there. You actually have to be enrolled in classes in order to receive the money. Give them a call and let them know you won't be attending, and they will cancel your Stafford Loans. Then, send your FAFSA information to your new school. You can reapply for financial aid there.