NEW YORK » 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.

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 at www.fafsa.ed.gov can get an estimate of their expected family contribution immediately. With a mail-in application, it might 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 some things you should know about the process:

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-served 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 at www.fafsa.ed.gov/deadlines.htm.

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.

Student Assets Count More

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

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

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.

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Candice Choi writes about consumer issues for The Associated Press. Write to her at cchoi@ap.org.