Financial aid is awarded to help low-income students afford the cost of education. If you have a scholarship, student loan or receive multiple grants, the financial aid may be greater than your tuition total. Excess amounts are disbursed by a school and mailed or deposited directly into your bank account. Your financial aid refund check cannot be garnished. However, once the check has been cashed and deposited into a bank account, the funds may be at risk, depending on the agency trying to collect them.
Grants are not classified as income for child support purposes. When determining your child support obligation, income from financial aid will not be taken into consideration. If you owe child support arrears, the child support enforcement will attempt to collect the money using a variety of different methods. When methods such as wage garnishment are unsuccessful, your state's child support enforcement agency may take more active measures, including placing liens on your nonexempt assets. Retirement plans, proceeds of a life insurance policy, workers' compensation, insurance settlement awards, non-homestead properties and bank accounts are some of the nonexempt assets. If your financial aid refund is sitting in your bank account, it can be seized.
Internal Revenue Service
The IRS has the authority to seize any nonexempt assets, which include bank accounts. Although your financial aid check will not be intercepted, a bank account levy will affect you. The IRS will freeze any accounts in your name, even joint accounts. If you receive financial aid and your spouse owes back taxes to the IRS, the money can be taken out of a joint bank account to satisfy the debt. The IRS does not freeze assets without warning. You will be sent a notice of intent to levy, providing you with the chance to settle the debt. Assets generally are not seized if you agree to a payment plan.
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A creditor must file a lawsuit and win to obtain a judgment against you before requesting permission to levy your bank accounts. In most cases, money from the federal government, including your financial aid refund, are exempt from the freeze. Your bank is unable to distinguish automatically between funds, so you will need to file an exemption claim with your bank, which challenges the creditor's right to touch the exempt portion of your account balance.
When your student loan is in default, you are unable to receive financial aid. However, you may have set aside grant or student loan funds while you were eligible. Money remaining in your bank account is at risk since you owe a government agency. Income tax returns can be seized and wages garnished until the loan is paid. Your financial aid is not protected from a student loan freeze. It is important to request a forbearance or payment plan to bring your student loan out of default.