If you have defaulted on federal student loans, the government can take life insurance payments or settlements made directly to you but there are a few stipulations in place. In order for this to occur, you must be the beneficiary of the life insurance policy and the individual must already be deceased. The government cannot attach a claim to funds from a life insurance policy that has yet to be collected. Also, life insurance money may be protected from the federal government if it goes into a form of a trust fund. Until the money in the trust fund is made available to you, it cannot be used to satisfy student loan debt. However, if the student loans remain in default when the trust money is due and payable to you, the government can then collect on the default amount and any fees associated with the loans, such as interest.