Is it true that graduates who join certain professions can have their student loans cancelled out? What about joining the Peace Corps? Are there “strings” attached? Also, what’s the difference between federal student loans and loans given out by private companies—and which kind is better? -Megan McCormick, Luther College

This is the right time to ask about student loans, since lenders of all types are being affected by the credit crunch that’s roiled financial markets since last summer.

It’s true that certain professions can get preferential treatment when it comes to paying back student loans. The technical name for this is “loan forgiveness.” For a primer, check out the website. Join the Peace Corps for five years, for instance, and they’ll pay off up to 70 percent of your loan. AmeriCorps and Vista have similar programs in place.

Grads who join the military, teach in inner-city schools or become nurses or public defenders may also receive repayment help. “Students want to join these fields, but the salaries are very low, and you have to eat,” says Mark Kantrowitz, who runs www.finaid.org. So the government and non-profit groups have stepped up.

Before you get too excited, be sure to read the fine print about how much time you need to spend in the field and whether your specific type of loan qualifies. Also, beware that when the loans are actually forgiven (when you’re a few years out of college), you may owe income tax on the disappearing debt, so discuss it with an accountant or tax preparer.

Now to your second question: what’s the difference between federal and private student loans? Federal loans—typically Staffords and Perkins for students, and PLUS loans for parents—are generally the better deal. Interest rates are capped by law, and the government often pays the interest while you’re enrolled in school. Some federal loans are issued directly by colleges; others are handled by banks and lending outfits. Fees can vary, so it can pay to shop around.

Private loans, issued by banks, are typically more expensive than federal loans. Depending on your credit score, you may need a cosigner for a private loan—so don’t forget, Mother’s and Father’s Days are right around the corner.

If you rely on student loans to pay a piece of your college costs (as two-thirds of undergrads do), this is a year to be particularly diligent. The credit crunch is driving some lenders (perhaps even the one you used last fall) to pull out of the student loan market. Writing in Newsweek recently, personal finance columnist Jane Bryant Quinn urged: “Call your school, right now, to see if your usual lender is providing funds. If not, start the hunt for other sources.” Dr. Money couldn’t have put it better.

Got money questions you’d rather not ask your folks? Ask the doctor, Newsweek business reporter Daniel McGinn.