Under 20 USC § 1095a(d), student loans and the proceeds of student loans cannot be garnished to satisfy any debt except for certain educational debts. This applies to both Federal and State debts, and should protect you from your State taxes. However, it is important to put the State on notice of this provision - I would recommend opening a separate bank account, putting this check into it, and making sure to never put funds from any source besides Federal Student Loans into this bank account. When funds are co-mingled, there is a risk that they may lose their unique character as protected, which could put your funds at risk.
This response is not offered as legal advice, but is only a general informational response for public interest. No one reading this is authorized to claim that an attorney client relationship exists with this writer or the writer's law firm.
While the money is at the Federal Government, it is not subject to seizure.
Once the money is deposited in your Bank account, it is subject to seizure.
If the money is paid directly to the school, it never goes through your bank.
Hope this perspective helps.
Mr. Krumbein is admitted to the courts of Virginia. His advice is often based on Virginia and Federal law, however, you should consult a lawyer in your geographic area for more detailed advice.