Your student loans, Pell grants (and others), and work assistance are exempt, or protected, under Federal law, regardless of which state you live in. However, if you mix these monies with other monies, they could lose their exempt status or be hard to trace.
For instance, let’s say you deposit a $5,000 student loan in your bank account, have a paycheck deposit on Friday of $1,200, spend $1,500 on rent, and then a creditor tries to garnish the money in your account. What money is he garnishing? Is it protected student loan money or non-exempt wages, or both?
Under tracing rules, you should be able to argue that your wages went to pay rent first, but it’s a hard argument. It is hard to trace which money is spent where unless you keep it separate. The safest way to do this is to deposit your financial aid into a separate account. Then it’s easy to show that ALL money in that account is exempt from creditors.
The federal law that protects your financial aid is 20 U.S. Code § 1095a – Wage garnishment requirement which states that:
(a) Garnishment requirements
Notwithstanding any provision of State law, a guaranty agency, or the Secretary in the case of loans made, insured or guaranteed under this subchapter and part C of subchapter I of chapter 34 of title 42 that are held by the Secretary, may garnish the disposable pay of an individual to collect the amount owed by the individual, if he or she is not currently making required repayment under a repayment agreement with the Secretary, or, in the case of a loan guaranteed under part B of this subchapter on which the guaranty agency received reimbursement from the Secretary under section 1078 (c) of this title, with the guaranty agency holding the loan, as appropriate, provided that…
(d) No attachment of student assistance
Except as authorized in this section, notwithstanding any other provision of Federal or State law, no grant, loan, or work assistance awarded under this subchapter and part C of subchapter I of chapter 34 of title 42, or property traceable to such assistance, shall be subject to garnishment or attachment in order to satisfy any debt owed by the student awarded such assistance, other than a debt owed to the Secretary and arising under this subchapter and part C of subchapter I of chapter 34 of title 42.