Only 10% of eligible borrowers refinance student loans despite potential savings. What’s stopping them?

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Only 10% of eligible borrowers refinance student loans despite potential savings. What’s stopping them?

For the millions of Americans carrying student loan debt, the return to repayment has raised an old question with new urgency: How can borrowers manage their loans without sacrificing long-term financial goals?

Despite widespread opportunity, data shows that only 1 in 10 borrowers who could save money by refinancing their loans actually do refinance, according to an analysis by Earnest combining publicly available data and proprietary underwriting models. While actual savings and eligibility may vary, this gap shows how millions of dollars in potential savings could be left on the table.

In September, the Federal Reserve cut interest rates by 25 basis points in response to slowing economic growth. Lower rates are meant to make borrowing more affordable, creating new potential to save money by refinancing. However, misconceptions and uncertainty are preventing people from understanding how refinancing works and whether it’s right for them.

Why do so few borrowers refinance their student loans?

Changes to the student loan repayment process in recent years have created uncertainty for borrowers. Between the pause on federal loan payments in 2020 (and eight subsequent extensions), the legal battles surrounding federal student loan forgiveness in 2023, and the ending of the SAVE income-driven repayment plan in 2025, borrowers have been in limbo.

Pandemic-era pauses gave borrowers temporary relief but also normalized a “wait and see” mindset. The stop-and-start nature of forgiveness news has left borrowers unsure of what support they can rely on.

Meanwhile, a lack of awareness around the refinancing process has prevented many borrowers from taking action. Common misconceptions include that refinancing your student loans costs money or that it’s a complex and difficult process. In reality, refinancing can potentially save you thousands of dollars over the life of your loan and simplify the repayment process. Checking your rate can be done in minutes with no credit impact, while online applications make the process straightforward.

Many borrowers report feeling overwhelmed by the complexity and worry about making a wrong move—which makes inaction the default choice. Now is the time to check your options. Here’s what you need to know to make an informed decision based on your financial situation.

How much money can refinancing actually save you?

Refinancing involves replacing an existing loan with a new one, often at a lower interest rate, that better fits a borrower’s current life and financial goals. Done at the right time, it can lower costs, free up monthly cash flow, or help borrowers pay off debt sooner.

The benefits translate into personal outcomes that resonate beyond financial jargon:

• Lowering an interest rate means paying less overall.
• Extending a repayment term means more breathing room in a monthly budget.
• Choosing a shorter term means the freedom of being debt-free faster.

And the math can be striking. As an example, consider a $100,000 loan at a 7% interest rate. Refinancing that balance to a 5% rate over a 10-year term could save more than $12,000 over the life of the loan.

What questions should I ask before refinancing?

Refinancing is not the right answer for everyone, but it is worth understanding when it might make sense. Key questions include:

• Is my current interest rate significantly higher than what I might qualify for today?
• Do I have steady income and a solid credit profile?
• Am I not relying on federal benefits such as Public Service Loan Forgiveness (PSLF) or income-driven repayment? (There are two Federal Student Loan Repayment plans, Fixed Payment and Income Driven Repayment.)
• Would consolidating multiple loans into a single payment simplify my life?

Equally important are questions that might signal “not yet.” Borrowers pursuing federal forgiveness programs, anticipating a decrease in income, or still working on their credit may find it better to wait. According to public data, about 800,000 borrowers have had loans discharged (or relief granted) under PSLF and related programs. Before refinancing, it’s worth double-checking whether you qualify for federal benefits.

It’s important to note that you will lose benefits associated with your underlying federal loans, such as federal Income-driven Repayment Plans, Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options, if you refinance into a private loan. If you file for bankruptcy, you may still be required to pay back this loan.

Why does acting now matter for student loan borrowers?

The point of the 1-in-10 statistic isn’t that everyone should rush into refinancing—it’s that waiting comes with a tradeoff. Each month of paying more interest than you need to, or juggling confusing loan terms, is money and peace of mind you don’t get back.

Now that payments are active again, the uncertainty that once made “wait and see” feel safe is starting to fade. And the Federal Reserve has signaled that further interest rate cuts are likely, which could make refinancing even more attractive.

The fact that only 1 in 10 borrowers refinance isn’t just about missed savings—it shows how confusing and overwhelming the process feels. Refinancing isn’t right for everyone. But for some, it can be a powerful way to save money, simplify repayment, or free up room in the budget. Taking the time to understand your options is the first step toward making repayment work on your terms.

Disclaimer: This article provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

This story was produced by Earnest and reviewed and distributed by Stacker.