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By Candice Choi, AP Personal Finance Writer

NEW YORK (AP) — It's crunch time for families counting on loans and grants to pay for college.

Deadlines to fill out the FAFSA, or Free Application for Federal Student Aid, are around the corner and likely generating anxiety in households across the country.

For those scrambling to get up to speed, the FAFSA is used to determine how much an applicant or their family should contribute toward education costs. Schools then use that figure — known as the expected family contribution — to determine how much financial aid should be awarded to bridge the cost of attendance.

Aid packages can include need-based grants, loans and work study programs.

Students who apply online at can get an estimate of their expected family contribution immediately. With a mail-in application, it may take two weeks or more.

Remember that it's worth applying even if you don't expect to qualify for need-based grants. The FAFSA is also required to apply for federal loans, which come with lower interest rates and more forgiving terms for default than the private student loans issued by banks.

Before filing, here are five things you should know about the process:

1. Timing Matters

Deadlines for filing the FAFSA vary depending on the state and school. Some are as early as February or March, but filing promptly could pay off.

That's because many have first-come-first-serve policies for their limited pools of aid, said Jennifer Douglas of the U.S. Department of Education. And the number of students seeking aid is up sharply since the start of the recession.

Deadlines for state aid can be found here.

The FAFSA for the upcoming fall semester is based on 2010 tax returns, but there's no reason to wait.

Douglas recommends that families who want to fill out the FAFSA quickly use the previous year's tax filings to best estimate their assets and income for 2010. Corrections to the application can be made later.

2. Student Assets Count More

To avoid any unpleasant surprises, it's important to understand how the FAFSA calculates your expected family contribution. The formula is complicated, but one of the more important rules to remember is that student assets and income are weighted far more heavily than those of a parent.

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For example, about half a student's income is counted, compared with a sliding scale that tops out at 47% of a parent's income. And about 20% of a student's assets are factored into the overall contribution. That compares with a sliding scale that maxes out at about 6% for a parent's assets.

It's too late now to strategize for a fatter aid package for the upcoming school year. But in the year ahead, consider using a student's income and assets on education expenses before dipping into a parent's funds. That will maximize the aid package offered for the following year.

3. Gifts Can Be Optimized

Financial gifts from friends and relatives are counted as student income in determining aid packages.

If you're looking to maximize aid, ask friends and relatives to save their financial contributions for the student's senior year. Aid for each year is based on the student's financial information from the previous year.

So the gifts and contributions in the senior year don't have an impact since students don't need aid once they graduate.

Another way to maximize outside help is to transfer the money to a parent's checking account. This minimizes the impact of the gift on the aid package, because a parent's assets aren't weighted as heavily.

The same goes for 529 college savings plans; grandparents can transfer them to either a parent or student's name. Under a new regulation, the distributions are considered a parent's assets even if the plan is in the student's name. Otherwise, the distributions are counted as student income.

4. There Are Financial Blind Spots

The FAFSA doesn't factor in consumer debt so don't expect any extra aid even if you're swimming in credit card bills or auto loans. Paying down debt as soon as possible will only benefit you.

Not only will you save on interest charges, but you'll also maximize the aid packages you're offered going forward. That's because you'd presumably be whittling down your assets to pay off debt, and smaller assets mean bigger aid packages.

Another FAFSA blind spot? Retirement funds and pensions. They're not counted as assets, so it makes sense to sock away money into them. In a sense, you could say the FAFSA rewards two tenets of smart personal finance — paying off debt and saving for retirement.

5. Whining Doesn't Help

The expected family contribution can't be negotiated with the Education Department.

That said, families can appeal to a school's financial aid office for what's called a professional judgment, or an adjustment of their aid eligibility. This is only an option if there are extenuating financial circumstances that weren't reflected in the application.

For example, a parent may have been laid off or a family member may have incurred steep hospital bills. Whatever the case, there has to be evidence of economic hardship that wasn't already disclosed.

"The process is driven by documentation, not pity," said Mark Kantrowitz, who publishes

In some cases, some schools will also adjust their aid packages to match an offer from a rival school in the area. But Kantrowitz notes that this is a relatively rare circumstance.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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