OK, enough merriment. College bells are ringing

Merry Christmas. Now get going on those college applications. While seniors write essays, their parents must get going on the dreaded FAFSA (Free Application for Federal Student Aid), which can be submitted after Jan. 1. There's no room for procrastination, since many schools have application deadlines in late January, and many offer aid on a first-come, first-served basis. If you want to get into the college of your choice, and if you want to get the money to pay for it, you have to start now. Even if you're a middle-income family, no one knows how much aid you might receive unless you start the process by filing FAFSA.

It's used by almost every college to determine the amount of money that must come from the student and parents, and the amount of aid the school may offer. The complicated four-page form is sent to the College Board for processing. Even better, you can fill out and file the form online at www.FAFSA.ed.gov.

Soon after, you'll receive a letter called the Student Aid Report (SAR) giving you a critical number -- the EFC or "expected family contribution." That information will also be sent to the schools you designated.

If a school decides to accept you, it will send a separate financial aid letter, describing the amount and kind of financial aid it will offer. The aid can be in the form of federally subsidized Stafford loans (a $3,500 maximum for freshmen in 2007), outright grants or scholarship, and work/ study programs.

Then the family will have to sit down and decide whether they can come up with the difference through savings, PLUS loans for parents, private loans or a home-equity loan.

The FAFSA form asks for details about income and assets of the student and family. Parents and student fill out separate portions of the form, so the parents' financial information does not have to be revealed to the student. Keep in mind that assets in a child's name, such as a Uniform Gifts to Minors Account, weigh almost seven times more heavily against you in the aid formula. So you might want to spend/use those assets for the student, such as buying a new computer, before year-end.

Here's what you need to know:

• • You must report total family income for the year just ended for the family with whom the student primarily lives. Don't wait until you have done your 1040; just estimate income from your last pay stub and W-9 forms.

• • An ex-spouse's income does not count, even if he or she is required by the divorce decree to contribute to the cost of college. But child support paid does count as income to the custodial family, as well as Social Security benefits of a deceased parent.

• • Assets in qualified retirement plans, such as IRAs, 40l(k) plans, and even student IRAs are not considered in calculating aid.

• • Contributions made to a retirement plan in the year just ended do count as income, so don't try to lower income by increasing retirement plan contributions in the year before you apply for aid.

• • The value of the primary home is not counted in the formula, but the value of a second home must be included.

• • Assets in trust funds do get reported, even if there is a restriction on access to that money, unless it was a court-ordered trust to pay future medical expenses.

• • A 529 College Savings Plan is reported as a parental asset (except in 2007, when because of a quirk in the tax law, it is not reported at all). Importantly, 529 plans set up with grandparents as owners are not reported, since the FAFSA requires only parents' and student's data.

• • A family-owned small business (with fewer than 100 employees) does not have to be reported as an asset on FAFSA.

Ultimately, each college or university will have its own formula for granting aid. Apply even if you think an expensive school is out of reach because a private school with a huge endowment might offer substantial aid.

I'll write more about researching student and parent loans in coming weeks when the search for money to fill the gap really starts. Until then, don't take yourself out of the running by failing to file FAFSA early. It's worth your time, and that's The Savage Truth.

Terry Savage is a registered investment adviser. Check out Terry's answers to reader questions at suntimes.com, and click on Business. Distributed by Creators Syndicate.