Refinancing a student loan is often a sensible option for people who are looking to save on their repayments and reduce the amount of interest that’s applied to what they owe.

Last year, the number of people choosing to refinance their student loan dipped significantly, which might sound like a surprising state of affairs from the outside.

So what’s the reason behind this drop off in the number of people taking action to keep loan costs to a minimum, and what does the future hold for this market?

Federal intervention, loan forgiveness and rising rates

Perhaps the single biggest contributor to the current state of affairs is the plans to forgive student loans at a federal level, which has created an intriguing situation in which repayments are effectively paused until a final decision is made on this matter.

Of course it’s not possible to refinance a loan you took out to cover the cost of your studies from the federal government, but there has been a knock-on impact on the rest of the market which has caused people to think twice before pulling the trigger on any kind of student loan re-jigging.

This has been further compounded by the fact that interest rates also climbed higher in 2022, going above the lows that were seen in the wake of the pandemic over the two previous years.

So even if people were in a position to refinance any private student loans to their name, it might not have made sense to do so at a time when so much volatility was influencing rates.

The path forward

The good news is that the cost of refinancing student loan packages from private lenders is dropping swiftly again right now, and looks set to stay lower in 2023 than it was over the previous 12 months.

If you’ve borrowed extra on top of any federal loan to go through college or university, as well as waiting to see what loan relief or forgiveness you receive centrally, it makes sense to consider your options for refinancing this year as a result.

For those starting their first job post-college, there’s also the promise of having to pay back less of any income that would have otherwise been set aside for federal loan repayments under the revised legislation.

This should leave people with more disposable income to play with each month, which in turn creates the potential for a much needed economic stimulus, so long as consumer spending and overall confidence rises in line with this trend.

The issues to acknowledge

What current students, or those aspiring to study at college or university in the near future, have to take into account is the reality that even with loans becoming less of a burden, there are extra costs to bear no matter what.

Average expenses continue to creep upwards year by year, with inflation not helping matters. It’s this dangerous combination with rising rates that puts more pressure on graduates, and makes it an undeniably challenging time for many millions of people.

The bottom line

In the right scenario, student loan refinancing can be a lifeline for those who still owe significant sums to private lenders.

It’s also an example of why making the most of federal borrowing opportunities is the best move, before considering any alternative.

Encouraging people to study and expand their minds, as well as improving their prospects, is good for the economy and wider society in the long run. Hopefully this will be reflected by changing policies, and everyone will be able to reap the rewards with time.