Can inheritance, IRA, or 401(k) be garnished for student loans?

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Stanley tate

Student Loan Lawyer

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The possibility of receiving an inheritance after the passing of a loved one when you have student loan debt can keep you up at night. Ideally, the money should improve your financial situation. But all types of questions go through your head — especially if you have a high balance or have student loans in default.

Here’s what you need to know about protecting your inheritance from garnishment for student loans.

Can inheritance be garnished for student loans?

Ordinarily, an inheritance can’t be garnished for federal student loans or private student loans. But if you stop making payments and your loans default, a student loan lawsuit could be filed against you. If that happens and the court enters judgment against you, then any funds in your bank account — including your inheritance — could be levied or taken to repay the debt.

Thankfully, there are options to prevent that from happening. For instance, you can:

  • enroll in an income-driven repayment plan (federal student loans)
  • request a forbearance or deferment
  • ​apply for loan consolidation
  • refinance with a private lender
  • negotiate a settlement
  • file student loan bankruptcy

Can the government take your 401k for student loans?

The federal government cannot seize or garnish your 401(k) assets for student loan debt that’s in default. The Employment Retirement Income Security Act of 1974 (ERISA) protects the funds in your 401(k) because the money only legally belongs to you once you withdraw it as income. Until then, the funds are the property of the plan administrator — your employer.

Note: The one exception to the ERISA protection is federal tax liens. The IRS can seize or attach the funds in your 401(k) if you fail to pay back taxes.

Can student loans garnish IRA?

Without a court order, student loans can’t garnish your IRA. When you default on federal student loans, the Department of Education will use its administrative wage garnishment authority to garnish your paycheck and offset your tax refund and Social Security Benefits. However, if the government or private lender gets a judgment against you, the laws in your state may not protect your IRA from garnishment.

What can student loans garnish?

Federal student loans can garnish your:

  • wages
  • income tax refund and
  • Social Security benefits

The federal government cannot garnish your pension, disability benefits, retirement accounts, 401k, etc.

Private student loans can garnish your wages and bank account. They can also place a lien on your real estate, but only if they sue you and get a judgment. (Again, their ability to do those things depends on your state’s laws.)

Typically, private student loans don’t sue you right after you have a late payment or default. I mostly see them sue student loan borrowers when the statute of limitations is close to running out.

How do I protect an inheritance from student loans?

If you’re receiving an inheritance, the easiest way to protect it from student loan debt is to get a payment plan you can afford so you can stay out of default. So long as you make your monthly payments and ask your loan servicer for deferments or forbearances when you can’t, your account will remain out of debt collection and in good standing.

If you’re leaving assets for beneficiaries, here are three ways to protect an inheritance from student loans:

  • Get a life insurance policy. Make sure it is enough to cover the amount of the balance owed on your private student loans. Federal student loans go away when you die. So your beneficiaries are already protected from the Department of Education.
  • Keep assets out of probate. Naming beneficiaries on all financial accounts, retirement accounts, and insurance policies bypass what’s written in a will. So those accounts will go directly to the named beneficiary without going through probate.
  • Put the inheritance in a trust. Working with an attorney or a financial planner, you can create a trust to protect assets (money, real property, etc.) from credit card debt and private student loans and minimize tax debt.

My student loans are in default; what do I do?

The Department of Education offers borrowers three options to get out of default:

  • Settlement: allows you to remove some of the interest and collection fees added to your loans over the years. You’ll need a lump sum or be able to pay the settlement amount in 90 days.
  • Consolidation: pays off your loans in default and gives you a new Direct Consolidation Loan. You’re eligible for loan consolidation if you have more than one federal student loan or an FFEL Consolidation Loan or Perkins Loan.
  • Rehabilitation: is a one-time program that gets you out of default after you make nine monthly student loan payments based on your adjusted gross income or financial situation. The loan rehabilitation program removes the default status from your credit report, which can help your credit score.

You can find out which options are available to you by contacting the collection agency that has your loans. If you don’t know which company that is, contact the Department of Education’s Default Resolution Group at 800-621-3115. A representative will use your social security number and birth date to find your loans.

Note: Due to the COVID-19/coronavirus pandemic, the federal government has frozen the interest rate and collections for federal student loans in default through January 31, 2022.

Borrowers with private student loans that are in default or charged off should read this article to learn their options.

Want to save your inheritance from student loans? Let’s talk.

If all of this sounds overwhelming, I’m here to help. For years, I’ve worked with people just like you with their federal and private student loans.

Schedule a free 10-minute call with me today. We’ll work together to develop a plan that fits your current financial situation and sets you up to meet your future goals.

Whether you have defaulted on federal or private student loans, we’ll get you back on track.


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I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

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